We all know it’s better to seek good advice and have a safety net before you need it. Unfortunately, many entrepreneurs end up learning that lesson the hard way. It’s not always obvious what traps you might get caught in before it’s too late (and you’re a few thousand dollars poorer).
To learn some common legal pitfalls we’d all be better off avoiding, we asked nine founders from the Young Entrepreneur Council (YEC) what unexpected things they found themselves needing lawyers for in the early stages of their startups. Here’s what they had to say:
1. Immigration
When it comes to the U.S. immigration system, don’t think you can go at it alone. If you tick the wrong boxes, even a simple tourist visa can become a hassle. Save time and headaches further down the road by talking with an immigration attorney first!
– Tyler Arnold, SimplySocial Inc.
2. People Incentives
I had the unique experience of growing up with a successful litigation attorney for a father. His advice to me when starting up was to align people incentives in a way that protects the company and aligns everyone to build for the long term. Hire a lawyer to help draft an incentive plan with a vesting schedule that fits your business. Investing in a lawyer early will save you a lot down the road.
– Matt Ehrlichman, Porch
3. Client Agreements
It only took one small misunderstanding with a client during our company’s first quarter to realize that it was in everyone’s best interest to use formal legal contracts with 100 percent transparency. Doing so has eliminated the incidence of legal mishaps and arguments with clients.
– Zach Cutler, Cutler Group
4. A Privacy Policy
The California Online Privacy Protection Act requires a website to “conspicuously post” a privacy policy if it “collects and maintains personally identifiable information from a consumer residing in California.” Personally identifiable information is broadly defined, so your website needs a privacy policy even if visitors simply submit their email addresses to receive company news and updates.
– Doug Bend, Bend Law Group, PC
5. Term Sheets
Oftentimes, early-stage companies think they can grab funding documents off the Internet without a lawyer. This is a surefire way to screw something up. You don’t necessarily need a lawyer to draft a brand new term sheet from scratch, but you do want the experienced eyes of a seasoned startup lawyer on your side.
– Adam Lieb, Duxter
6. Trademarks
You will find out sooner or later that some people aren’t very creative and love to copy other people’s work. Once you get some traction, don’t be surprised when you have to hire a lawyer to file a trademark on your logo because people start imitating it.
– Russ Oja, Seattle Windows and Construction, LLC
7. Mutual Non-Disclosure Agreements
Unlike a one-way nondisclosure agreement, mutual NDAs are trickier, and it’s recommended to have a lawyer review those types of agreements. The opportunity to use a mutual NDA can arise when starting to work with business development partners. As an early-stage company, you may start to work with business development partners early to scale your product. Have a lawyer look over your mutual NDA before you move too fast.
– Doreen Bloch, Poshly Inc.
8. Small Claims Court
We had an early client who simply stopped replying and never sent payment. I assumed the combination of a contract and personal connection would be sufficient, but eventually, we needed to go to small claims court. I had to personally represent our business, but our lawyer helped guide me through the process.
– Aaron Schwartz, Modify Watches
9. Defamation
We were unpleasantly surprised when we found multiple blog posts created by the ex-boyfriend of one of our female contractors. The posts were untrue and extremely defamatory and slanderous. However, we still had to pay the money to have a legal team engage the relevant parties because Google will not take down posts without a court order.
– Gideon Kimbrell, CLUBSCORE, INC
What do you think? Have you hired or not hired a lawyer for your startup, and why?
Scott Gerber is the founder of the Young Entrepreneur Council (YEC), an invite-only organization comprised of the world's most promising young entrepreneurs.
