Most startups understandably have very little to spend on legal matters — after all, every dollar spent on the lawyers is a dollar that cannot be spent on marketing or product development. However, that is not to say that hiring a lawyer doesn’t add value to your company. The best way to ensure that you get value for your legal dollar is to prioritize the handling of your legal matters.
Like with many things in law, the answer to what order you should have your legal matters handled is “it depends”. It depends on where your business is right now. Nevertheless, the priorities should follow a general pattern as described below.
Generally, the first legal priority for startups is incorporation or LLC formation. However, not every startup needs to incorporate or organize right out of the gate — perhaps you’re still working on your business plan, refining your product, or learning to work with your cofounders (if any). Incorporation or organization can be delayed until your business is ready to start incurring liabilities, or if you’re looking for investors. Despite the prevalence of “do-it-yourself” incorporation service such as LegalZoom or RocketLawyer, you should almost always retain an attorney to form your business for you, especially if you have multiple founders/investors or need a more complicated equity or management structure. Only if you have a very good understanding of your legal options and requirements and only need a very simple business structure should you attempt business formation without legal counsel.
If incorporation/organization can be considered “1a” of legal matter priorities, “1b” should getting your intellectual property in order. This doesn’t mean registering trademarks or patents, which can be deferred for some time (although you should also be careful about disclosing a product you intend to patent, as that can trigger deadlines for filing applications); instead, you should be making sure that whatever formal entity arises for your startup owns and has the rights to protect that IP. If you’ve been developing intellectual property on your own, you should be assigning that IP to the company; similarly, if you’ve been having independent contractors develop anything for your startup, from software code to marketing materials, you should ensure that your agreements assign the IP to your company. You don’t want to end up in a situation where you have to go back to your developers to better secure your company’s IP — they may be less willing to help you after the fact! Although there are plenty of IP assignment and developer agreement templates out there, if you don’t feel comfortable handling the matter yourself (or if the other side has a lawyer working for them!) you may want to consider retaining an attorney to counsel you through the process.
The next legal priorities for your startup depend on what the next step for your business is, whether it’s hiring employees (where the priorities are creating employee handbooks/non-disclosure and non-compete agreements, compliance with labor regulations, and setting up systems for tax withholdings), or seeking investment (where the priority is ensuring that the process is conducted according to securities laws).
However, perhaps the best piece of advice for prioritizing for a small legal budget is not overpaying for legal services. It sounds like an obvious piece of advice, but I’ve know startups who’ve gone to major law firms for their incorporation and spent twice what a startup-focused boutique firm or solo practitioner would’ve charged. A law firm or practice that matches the size of your company is usually better able to work within your company’s legal budget.