DIY Legal Documents on the Internet May Lead to Trouble
A few reasons startups might want legal advice insteadBy Amy White | Reviewed by Canaan Suitt, J.D. | Last updated on November 6, 2023 Featuring practical insights from contributing attorneys Sarah Fergusson Chambless and Tamara M. Kurtzman
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Tamara Kurtzman knows it sounds self-serving, but she says entrepreneurs should steer clear of the internet as a source of legal legwork for their startups. “You need to actually see a lawyer,” she says. “Sadly, it’s the first thing that most people don’t do.”
She gets it—startups are often tight on cash and focused on the dream.
“Online resources are vast, and while DIY legal is very tempting, it’s also a disaster waiting to happen,” says Kurtzman, of TMK Attorneys in Beverly Hills, California. “I’ve seen it 1,001 times: A small business starts doing well, they’re in a growth spurt and looking to expand or get a loan of some kind, and all of a sudden, you’ve got bankers and investors asking to see all of the documents you kind of glossed over. That’s when it gets messy since no bank wants to touch you for fear of liability.”
While some business forms may seem as simple as fill-in-the-blank, you can make some big mistakes that jeopardize your startup’s future. Seeking basic legal information and legal services isn’t as costly as losing your business because of online forms.
Some Legal Forms Are Do-It-Yourself, But Most Aren’t
Some corporate formalities might be relatively simple to fix, she notes, but it’s the minefield of legalese and applicable laws one doesn’t know that might kill the deal.
“For example, why would a person starting a business know that, under California law, if you enter into a work-for-hire relationship, state law actually treats that worker as an employee and all that comes with it: Social Security, unemployment, taxes?” she says. “If you’ve miscategorized your employees, that’s a huge problem.”
So is navigating the securities transactions laws that affect startup cash. If Mom, Dad, Uncle Bob, and your best friend from middle school all tossed into the pot to get you started, “There are all sorts of rules and regulations that apply to that seed money, and if you didn’t properly document everything, when someone comes asking questions about prior investors, you have another problem.”
When Should I Find Legal Help?
So when is it a good time to see a lawyer?
“My hope is that people call me when they’ve actually done some homework and exploration,” says Sarah Chambless of Fenwick & West in Santa Monica. “They’ve worked out a business plan, they’ve got a deck together, they’ve got a prototype they’re working on, or thinking about going into closed beta.”
If you’re already selling your product out of your garage, Chambless says you’re a little late. “If you put a product out into the universe before a company is created, you’re not protected by the limited liability that companies provide to founders,” she says.
Internal factors might be even more critical, she adds. “It’s really hard to see past the kumbaya stage of a business, where everyone is excited, everyone is in love with what they’re doing and willing to do anything to make success possible. So it’s very common for founders to delay having the really tough discussion of, ‘What happens if our circumstances change?’ An attorney can navigate through all the potential exit strategies.”
Visit the Super Lawyers directory to begin your search for an experienced business lawyer or law firm in your area that can help with your business’s legal needs. For additional information related to this legal area, see our overviews of business and corporate law.
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