All posts tagged startup lawyer

Five Reasons to Be Your Startup’s Own Lawyer

Five Reasons to Be Your Startup’s Own LawyerGuest blog post from Josh King. 

Of course you need a lawyer if you’re raising funds (and Joe is a brilliant choice for that).  And you need a lawyer if your business model revolves around something risky and untried – like publicly rating every lawyer in America.  But if you’re a startup founder, you owe it to yourself to get at least minimally educated on legal issues, so you can choose where to devote your carefully marshaled cash to legal fees, and get better value in the process.

  1. You Can Read Your Own Contracts.
    You need to read and understand your own contracts.  For the vast majority of contracts that newly-formed startups will enter into (with the notable exception of formation, investment, and loan docs), the business terms matter far more than the “legalese.”  As long as the financial terms are right and there aren’t any long-term commitments, exclusivities or other terms that could complicate a future strategic deal, there’s likely little to worry about legally.  Sure, a lot of lawyers will tell you that something could still come up and bite you.  And it could.  It absolutely could.  But that’s why you’re the entrepreneur; you’re taking that risk in exchange for not having to spend the time, legal fees and negotiating uncertainty in getting lawyers involved.
  2. You Know What’s At Stake.
    Here’s a shock: many lawyers aren’t well-trained to differentiate between those issues that matter and those that don’t.  For every lawyer who will scale his or her work to the size and complexity of the deal, some will happily spend hours arguing over and re-crafting minor provisions in small contracts.  I can’t emphasize enough that for most agreements your startup enters into, you don’t want “perfect” documents.  You want things that generally work for you, don’t unduly tie your hands, and let you get back to your business.  That’s all.
  3. It’s Easier to Be Friendly.
    Here’s a radical thought – don’t look for maximum contractual advantage in your business deals.  While many attorneys are trained to get “the best possible deal” in the form of contract terms most advantageous to their client, this is often NOT the best possible deal for your startup.  It’s highly unlikely that the legal terms in your agreement will ever matter.  But what’s 100% likely to matter is getting deals in place, having fair business terms, and establishing relationships that can help your business grow.  In the early days of your startup, that’s best accomplished using simple, fair contracts.  You’ll build trust and minimize friction – all at a minimal cost in added legal risk.
  4. Coaching is Available.
    If you’re engaged with the issues facing your business, you’ll know when you need a little legal guidance.  You’ll be far better-positioned to get that coaching – and have it laser-focused on the exact issue you’re addressing – if you’ve been the one dealing with the issues.  It’s a more cost-effective approach than tossing everything that’s vaguely “legal” over to your lawyers for review.
  5. You’ll Know What to Look for in a Lawyer.
    As your business grows, it will at some point make sense to hire a lawyer to help guide the business.  If you’ve been actively involved in the legal work for your startup, you’ll be able to tell if the lawyer you are hiring a) has the ability to differentiate between important and non-important and issues; and b) shares your attitude toward risk.

Oh, one final piece of advice – if you go this route, just don’t call yourself a lawyer.  The Bar frowns on that . . .

Josh King is Vice President – Business Development & General Counsel of Avvo in Seattle.

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Startup America Suggestion of the Day: Extend the Rollover Period in Section 1045 (Installment 9)


I can’t take credit for today’s suggestion–I heard it from Tom Alberg at the Northwest Regional Angel Capital Association conference. Tom’s idea is worth advocating for.

Internal Revenue Code Section 1045 allows taxpayers (other than corporations) that have held qualified small business stock for more than 6 months to defer the gain on the sale of such stock if they reinvest the proceeds of the sale in qualified small business stock within 60 days of the sale. (Think of Section 1045 as the equivalent for startups to Section 1031 for real estate.) This is a very beneficial provision, because you have to meet a 5 year holding period to benefit from the Section 1202 exclusion from income.

The trouble with Section 1045 is that 60 days is a very short period of time in which to identify and invest in another company. It typically takes investors several months to identify and make investments in qualified small businesses.

For the benefit of startups, the Startup America Initiative team ought to advocate that this 60 day period be extended to something on the order of 1 year, or perhaps 270 days, to allow investors time to find investments in an orderly manner and be able to take advantage of Section 1045.

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The Administration’s 1099 Proposal In The Budget

If you are interested in the latest proposal from the administration on the new Form 1099 requirements, this was what was included in the analytical perspectives that accompanied the budget. As you can see, the proposal does not completely do away with the requirement that persons in business issue Forms 1099 to corporations (except tax exempt corporations) with whom they do business.

Repeal and modify information reporting on payments to corporations and payments for property.—Generally a taxpayer making payments to a recipient aggregating to $600 or more for services or determinable gains in the course of a trade or busi­ness in a calendar year is required to send an infor­mation return to the IRS setting forth the amount, as well as the name and address of the recipient of the payment (generally on Form 1099). Under prior law this information reporting requirement did not apply to payments to corporations or payments for proper­ty. Effective for payments made after December 31, 2011, the Affordable Care Act expanded the informa­tion reporting requirement to include payments to a corporation (except a tax-exempt corporation) and pay­ments for property. The Administration recognizes the burden that this expanded information reporting provision will put on small businesses and proposes to repeal the provision. Instead, the Administration pro­poses that a business be required to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation); in­formation returns would not be required for payments for property. This proposal would be effective for pay­ments made after December 31, 2011.

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