One of my favorite lawyer jokes goes like this:
Q: What’s the definition of a corporate lawyer?
A: Someone who prevents exciting things from happening.
Unfortunately, and all too often, the joke is true. Many corporate lawyers fail to see the forest for the trees. They get so wrapped up in focusing on every possible thing that could go wrong in your business or transaction that they “overdraft” your corporate documents and contracts and scare off the other party to your transaction. Moreover, they often adopt an adversarial stance vis a vis your business partners, customers, and contracting counterparties, which ends up souring what is supposed to be a positive business experience for the companies involved. All this extra time and extra analysis ends up costing you time, unnecessary anxiety, and more money in legal fees.
In short, corporate lawyers too often act like overly wordy litigators. And that’s not what we’re supposed to be. We’re supposed to help you build, not to tear down. We’re supposed to help you perform cost-benefit analyses with respect to your contract language, not throw in everything but the kitchen sink. And building and benefiting should always be a cooperative and forward-looking endeavor, not an adversarial and retrospective one. It’s not about your lawyer’s ego. It’s about your business.
However, there’s at least one time during the life of your company when letting your lawyer get analytical and obsessive is actually more beneficial than detrimental, and when there’s a quantifiable benefit to the money you’re paying him for his services. And that time is when you decide to start a new business.
You’ve got to get your ducks in a row, make sure the language in your formation documents is tight, and keep your gaze steely. You don’t want your lawyer to stop this exciting thing from happening, but you DO want him to slow it down enough for you to make some serious decisions that will affect the financial and operational future of your new enterprise. Decisions such as choice of corporate form, tax considerations, investor rights and obligations, corporate governance, banking relationships, and a host of other issues. Some can be put off until a few months after you’re up and running. Most cannot. This is one time when preventing an exciting thing from happening too quickly is actually desirable.
Are you going to part with some money in legal fees, as the title of this blog states rather forcefully? Probably. You might be able to spend a bit less, but you might end up spending more. It depends on the type of business you’re starting, your financing, your facilities, your investors, your choice of corporate entity, certain tax considerations, and your appetite for risk, among other things. It won’t cost you an arm and a leg, but it’s going to cost you something. And it’s going to be some of the best money your business ever spends.
I’m going to explain why over the course of the next several weeks of blogging. Stay tuned . . . .