Hey all. I'm trying to figure out something very important for our business right now and would love any and all help I could get. We're at the stage right now where we need to put some legal things in place (Terms of Service/Member Agreement, Trademarks, possibly Incorporation). I'm looking at the estimated legal costs for all of this and it's looking in the neighborhood of $5K-$10K. That's a huge expense for us at this stage especially because we're not generating significant revenue yet. What I'm wondering is whether there are any creative ways to save on these expenses. A few thoughts that occured to me: 1. "Do it yourself" - Based on some templates we have I think we could do a pretty good job writiing up stuff like Terms of Service and a Member Agreement on our own. My concern is that it wouldn't have the official blessing of an attorney and that we might make mistakes. 2. Trading equity for legal services - Although I'm hesitant to give up equity unless necessary this might be a way to make sure our i's are dotted and t's are crossed without having to pay upfront for it. 3. Find someone through Guru, ELance, etc. - I think I might be able to find someone here to do what we need for cheaper. I'm a bit concerned about quality here (although less so than if we decided to do it ourselves). I'd love to hear any thoughts that any of you have. What strikes me as strange about starting a business is that we do everything we can to scrimp and save costs in all areas but then we have to go to a lawyer who charges a few hundred dollars an hour to get docs created for us. If we were a venture-funded company then we'd just get the big law firm to handle this for us and life would be good but we're not. The source for the money for the attorney would be the same as for my food and rent. Thanks in advance for any help here.
Here's what my first boss (and owner of that company) told me 30 years ago: "Always hire the best lawyer and the best accountant you can afford." Sage advice I've tried to follow ever since. Scrimping on your legal and accounting structures now will likely prove very expensive in the long run. We're a two-man shop and spent nearly $20,000 setting up the most beneficial corporate and tax arrangement for our partnership. We've operated three years with no legal or accounting problems. Just thinking about "doing it myself" is giving me a headache. db PS. It doesn't mean you pay rack rate ... you should always negotiate the best rate possible no matter who you hire.
That makes sense db and I really appreciate the advice. We're based in Los Angeles and it being a big city, the lawyers here typically charge big city rates (e.g., $300-$400/hour). Since most legal work of this nature can be done over the phone, via e-mail, etc., I'm wondering if it wouldn't make more sense to find someone in a smaller city who might work for a lower billable rate. They might be just as good but not cost nearly as much. I'm also intrigued by the ELance/Guru possibility. I've had really good luck with these services in the past. While I've never used them for legal matters I'm thinking that they could be good because projects are often done for a fixed cost. Thank you for your feedback and I'll look forward to hearing additional thoughts from others.
I find myself reading nolo books for help. Right now I've learned enough to be very dangerous. I've created two long lasting companies and now want to start a nonprofit charity. I'm guessing with any project, it depends on who your market is. I wouldn't ever recommend doing an "Adult Industry" project without a lawyer, but if you are starting another million pixel web page, you might get away with a DIY approach. Tom <== Not a Lawyer.
Whatever you do here is going to be a tradeoff between quality and cost. My best advice to you is to: 1) find someone who does this frequently or has at least done it before and 2) offer them the templates you're considering using. The people you're going to get at $300-400 an hour will be smart lawyers, but there can still be some quality tradeoff based on the fact that you can't pay them to work for that long. 25 hours or whatever just isn't long enough to guarantee that one of these documents is airtight. At the same time, if you're going e-lance, you're getting bottom-of-the-barrel lawyers. There are quite frankly a number of people who get through law school who I would never trust to be my lawyer. They're only going to catch the most obvious problems, if anything. I think the best compromise, if you can find it, is someone who has done this for multiple companies and has a boilerplate that they repeatedly use - they'll have had the time to go through it and look for the tiny, unlikely problems as well as the big ones. When you're calling around, ask them how many times they've done this, whether they have preexisting documents, etc.
Gosh, great advice. I really appreciate it. The thing is that in the spot we're in right now we don't really have a lot to lose. We're not sitting on a lot of assets or a huge existing customer or revenue base. So there's part of me that thinks that we should get it done as cost-effectively as possible and then when/if the revenue starts rolling in we'll be in a better position to afford to have it looked at again to make sure we aren't exposed. However, I've also learned from a previous start-up that not doing things right from the get-go can lead to problems down the road that can be more costly than if you had simply done things the proper way to begin with. The hard part is that I have a great template to use for our member agreement and all I'm really asking for is someone to tweak that a bit. It just doesn't seem logical to spend thousands of dollars for someone to do that.
That kind of stuff is ultimately just going to have to be a gut call about how likely it is that you're going to get into legal troubles down the line. You're going to know your startup best, so I'd sit down and try to brainstorm with your partners anything you think is a serious risk of a lawsuit. Also remember that it's not just the risk of you being sued - it's also the chance that you might want to sue someone yourself. If there's anything your members or users or whatever can do with their products or services that you think could do enough damage to your business that you would have to or want to sue them, either to get money or to stop them from doing something, then it's more likely that you'll want to spend more money on having the template gone over. You'll also have to think about what the likely damages would be if your product seriously messes up - can it destroy people's data, hurt people, their businesses, whatever. This is just general stuff, but basically you'll just sort of have to think about questions like that to determine how much you're willing to spend on getting it airtight. You should also keep in mind that you could revise it later on in the business once you've got more money coming in (again, hard to tell if that will work or not, but it might be cheaper now to ask an attorney that question than to have them revise your document.) I know that some companies do things like revise their online agreements and make you reagree to continue using software, for example. It might not work with your product, and it might not even hold water with customers who bought something and initially agreed to a different agreement. But if you're weighing risks, you might ask yourself, "Is it OK to have my first X number of customers under a questionable member agreement, and all after that under a good one?"
Just like kneukm03 said, it is important for you to analize your risk of running into trouble. If you ar eproviding a service, advice, or a product you have a much higher risk of lawsuit than if say, you are an affiliate. Keeping Legal Costs Down is an article I wrote on the subject. It is a little less helpful than I thought it would be.. Maybe I will write another :-/. But anyways, if you give your lawyer a good outline of what you want it could save you money. Also, some lawyers might be interested in just modifying something that you wrote with a template.
Great stuff guys (and gals? ). What I'm starting to think is that maybe I should seek out a really solid attorney in a smaller city. The attorney I talked to here in LA seemed to indicate that everything would likely be down via phone or e-mail. If that's the case, there's really no benefit to going local (other than perhaps greater knowledge of California law if that turns out to be relevant). I think in the big city you're paying more for the image, higher cost of living, etc. and such. None of that benefits me. Of course the issue is finding someone solid in another city. I have a lot of recommendations for here in LA but nothing for another city. I'm still intrigued by the ELance/Guru route, especially for the incorporation and trademarks. The member agreement is a bit more specific to our business but the other two should be pretty straightforward. Anyway, thanks for all the help thus far. I can't believe how much assistance I've gotten already.
My biggest expense when I started my business was my legal costs. As everyone has already said it's important to get it right the first time especially on the Internet where you do not see or speak to customers. I think is it worthwhile to invest in a lawyer that has experience in e-commerce who can write you an iron-clad contract for your terms of service. My terms and conditions are very easy to read but are very tight. It's important as the laws relating to the Internet and e-commerce are still evolving and many times they have not been tested in court. Also, the best lawyer does not always work at the best well-known or prestigious firm in the middle of the city. It's just a matter of looking around and seeing what's available and giving them a call.
If you don't have the money to do it right, you could incorporate in a state like Nevada where piercing the corporate veil is almost impossible except in cases of fraud. There are a number of online companies that can assist you. If the venture takes off, you can then look into changing your structure. You can then establish your own TOS by looking at other large companies and putting something together yourself. Obviously this isn't the preferred way of doing it, but since you have little assets combined with a corporate veil, you would greatly minimize your risk. Attorneys don't like to go after someone or an entity with little or no money. Depending on what you are doing, you might be able to get a liabililty insurance policy for $500 and up. You didn't mention exactly what you mean by "trademark" - are you talking about a logo, name (servicemark)? In any event, you don't need a trademark to have the same protection as not having one. A trademark doesn't really give you any more legal right to the name or logo. The rights go to the person who first used it. If someone else has already used the name (even a one person company operating out of their house, they own the rights). You just need to be able to prove when you first started using it in the event someone comes forward and claims they were using it prior to your use. A trademark, at best, takes 6 years before it is granted as there is a 5 year waiting period after publication (which takes about a year). I would at least hire a trademark search company to look for prior usage (it's a lot more involved then just checking the trademark office). This will run you about $300 (and up depending on how much you want done).
Great feedback. I have a couple of follow-ups: 1. One of the things in my situation is that at this stage in my life I don't have a lot to lose financially (on the personal side). Most of my money has been invested in the business and thus there wouldn't be a whole lot of non-corporate assets to go after anyway (e.g., I don't own a house, have a ton left in savings, etc.). I see this mistake a lot with small companies where they seem to spend a ton of time, energy and money worrying about how to protect themselves from lawsuits and such when the fact of the matter is there isn't much worth suing them over anyway. I certainly want to have something solid in place as it will be easier to sign up customers and clients if we've done this right. On the other hand, given the relatively little means under which we're operating right now I have a hard time throwing a ton of money at the legal docs when it will likely come at the expense of other things (content development, technology infrastructure, marketing, etc.) that IMHO will build a lot more value. 2. Great advice on the trademark. That's another area where I think start-up companies often spend too much money. If you have a hot brand or hot name that's one thing but most companies don't, especially not in the early days. I guess at times I just get frustrated because it seems that the legal expenses are so out of line with everything else in the biz. We all talk about how to save a few dollars in all of these different lines of our business and then we go to the attorney and get the bill and its $10K and we pay it without stopping to consider whether it's a smart expenditure.
I would have a different take than some of the others. It sounds like some of the things you're looking for aren't that complex. Of course, this depends on the nature of your service, but I can't imagine that it is going to be that difficult that it would cost you as much as you're suggesting - unless you go to the high billing attorney. My suggestion: see if there's a small business law clinic at a law school near you. You might be able to get some good advice, and some of this stuff you might find out that you can handle yourself.
BTW, I agree with mjewel, if you haven't already incorporated your company, look at doing so in Nevada. That's where we chose to set up our US office. There are huge tax benefits and legal protections afforded there that are not available in most other states, particularly California. I can give you some particulars if you PM me.