When to Involve Your Lawyer

Lawyers are expensive and we bill by the hour.  Which means one thing: using less legal services saves you money. Unfortunately, it just ain’t that simple.

The real problem is, failing to use legal services when you really need it, can cost you down the road.   So, the purpose of this article is to help you identify the types of contracts where you should have your attorney review.  What can happen if an attorney doesn’t review these?  Well, I’ve seen venture financings get helps up, huge tax bills created, M&A deals die and companies spend tens of thousands of dollars to fix a problem that could have easily been fixed in a few minutes, just because the client didn’t have their attorney review certain agreements up front.

I’m not an advocate of having your attorney review every contract (the expense isn’t feasible), but I do think for certain types of agreements or very important agreements, those dollars spent can keep you out of trouble down the road.

So, without further ado, is a list of a few times and types of agreements that I think a startup should ALWAYS involve their attorney (at least in some level of review):

• License Agreements. License agreements oftentimes involve complicated scenarios over ownership. Be careful in cases where you are licensing technology from a third-party or are licensing your technology to a third-party.

• Non-Standard Employment or Consultant Agreements. Many startups will work with their attorneys to create standard form agreements for employees and consultants. In the event the employee or consultant has proposed changes to legal terms (ownership of intellectual property, non-disclosure, non-solicitation, or non-competition, just to name a few), you may want to involve your attorney.

• Investment Agreements. Compliance with securities law exemptions is very important for any privately-held business. You should involve your attorney when you negotiate any non-standard investment contracts.

• Joint Development Agreements. Be careful of intellectual property issues that may arise when you negotiate a contract that involves two parties making contributions.

• A “Material Contract”. Any time you are entering into a contract that you would consider to be material to your business you should get your attorney to review it. A material contract is any contract that is not entered into in the ordinary course of business. If it isn’t a contract you’ll enter into with regularity in your business or involves a major amount of expense or revenues in your business, you should consider outside review as well.

• When the other party involves their attorney. In the event the other party has elected to have their attorney participate in the negotiations and the contract preparation, you may consider involving your attorney.

When in doubt, you should check with your attorney on provisions that raise issues. You may find that your attorney can quickly review select provisions of a contract even if they do not review the entire contract, or may be able to provide a final review prior to signing to flag any potential issues.