Why You Need A Lawyer When Starting A Business

Starting a Business
  • Starting a business can be stressful and it's important to seek out professional advice when necessary - especially for legal matters.
  • It may be tempting to get advice from a friend or family member, but unless they are a legal professional that specialises in business law they won't have the expertise to provide legitimate advice.
  • To prevent paying for avoidable mistakes in the long run, read on to learn the top three ways you can engage a business lawyer to help you get your startup up and running.

So, you’ve got an awesome startup or business idea and you’ve validated it with credible traction.  Now you’re ready to launch your business.

But when you should engage a lawyer is a common question we are asked, and who should you get legal advice from?

When should I hire a business startup lawyer?

Here are three suggestions as to how you can engage a startup lawyer to get it right the first time - and save you a massive headache down the track.

1. Uncle Jack, my Lawyer (avoid getting advice from family and friends)

Using your family or friends sounds like a good deal, but if this area of law is not their expertise, then you may end up paying for it in the long run.  Depending on how you want to structure your company there may be different options.

A lawyer well versed in the space may be able to provide you with more flexibility that will cater to your company and it’s growth in the short, medium and long term.

2. Setting up, properly

You’re spending a great deal of time and effort on establishing your business. Are you getting the basics right? 

LawPath gives you the ability to select the right level of legal support for your business.  There are some relatively low-cost precedents  (templates) available and you can access up to 30 minutes with a lawyer free of charge to discuss and review your legal position.

Some key things to consider when establishing your business:

  • Company name - have you done a company search? Sounds basic but Is anyone else using your company name globally? If so, what are the implications? Are there trademarks in place or will you need to register some to protect your business?  Do you have an established ABN/ACN established, or do you need Incorporation? Are you establishing a shareholders agreement? 
  • Customers – your customers are providing you with their data and using your service.  Are you up to date in terms of implications of the recent amendment to the Privacy Act? Is your company compliant and operating within Australian law? And what about your Terms and Conditions of Use, does it indemnify you against misuse of your services? Could your company be doing more to better protect its intellectual property?  Or could you be extracting more value from your IP?
  • Staff - you’ll be looking to bring on staff in the short to medium term and you’ll need an employment agreement that best protects your business.

3.  Developing a working relationship with your lawyer 

Post establishment of your business, you’ll need Legal advice throughout different events within your business such as taking on investment or issuing employee (share) options, acquiring a competitors business, in the case of a commercial dispute, or possibly even a sale of the business. 

Developing a working relationship can only benefit your business and help you better understand your position and options when such events arise.

I asked one of our LawPath Lawyers, Paul Miller from Deutsch Miller to provide insight into common shareholder agreement disputes.  

“There are various procedures that can be inserted in a shareholders agreement where the pre-agreed initial dispute resolution process has failed. I will comment on two of the more draconian solutions below:

  • “Russian Roulette” clause – one shareholder serves a notice on the other setting out a specified price for a half share of the company. The other shareholder is required to give notice to either buy the notifying shareholder’s half share or to sell its half share, at the specified price. If the shareholder who receives the notice does not elect to do either, it will be deemed to have agreed to sell its shares to the other shareholder;  and
  • “Texas Shootout” clause – both shareholders submit to an arbitrator sealed bids of the price at which they are prepared to buy out the other shareholder’s half share in the company.  The sealed bids are opened together and shareholder who submits the higher bid must buy and the shareholder who submits the lower bid must sell their half share in the business.
  • There are other solutions that may fit better with the shareholders depending on their particular circumstances and the type of business.

We would strongly recommend a Shareholders Agreement contain a robust dispute resolution clause to ensure there is a process that can be followed in circumstances where the relationship between the shareholders irrevocably breaks down.” 

Paul Lupson

Co-founder & CEO at LawPath. LawPath connects Australian businesses to expert lawyers with the right experience at low cost across Australia and the rest of the world.