Lesson #6. My legal advice:

My legal advice to anyone who is uncomfortable about legal business issues: you know so much more than you think you do about the basic legal forms you need to set up in your business. Just do it!

Any business needs a good lawyer, it is a fact. However, lawyers are almost prohibitively expensive to startups so you have to make sure that the person you choose is someone you can dependably work with closely and well to get the job done right efficiently. To find a good match takes time. In the mean time, there are cheap and free ways to get the legal stuff at least started.

Unfortunately, it took Mary and I until we decided to close the business to learn this. While we were running the business, we had a tough time finding a good fit for us. In the meantime, we struggled with feeling like the legal agreements we needed were out of our reach to do on our own. We learned through mentors and friends that really, any legal agreement can be hashed out through going over one’s practical needs for the relationship to work; a few phrases of what you need and when and how and for how much. The rest of the typical legal language in an agreement you can put together in other ways if you don’t yet have a lawyer. We received example documents to give us ideas. We peeked at LegalZoom.com as well. But we felt we just needed that “stamp of approval” from someone who had a law degree. I think we were both afraid we might forget in our agreements something so important that we would be sued or have to go to jail if we did anything ourselves.

Looking back, it is unfortunate we let this fear stop us so much. It hindered us from ever putting together an operating agreement between Mary and I and it stopped us from entering creating an agreement with our programmer. This really hurt us from making quick headway in our project.

When I decided to leave the partnership, we needed to figure out what to do; close the business and start new, or assign interest of iTipArtists to Mary? My gut thought that closing the business and having Mary start a new one would be easiest. But I wasn’t sure. Maybe assigning interest would be easier though I didn’t know what that entailed. A good local lawyer counseled us to have me assign my interest to Mary. It would just be a simple form we understood. We ended up hiring a second lawyer to help us do this as the first could not take us on as clients at the time. We gave her a $500 retainer, which in addition to several things, required us to whip up that operating agreement anyway, even though we didn’t have one yet in place.

The $500 was used up quickly and the assignment of interest was not yet complete. We inquired of the second lawyer what it would take just to end the business and have Mary start a new one. She gave us a list of things we needed to do.

Guess what! Every one of them we could do ourselves. We got all the answers we needed by looking at the IRS website, the Arizona Corporation Commission website and LegalZoom.com. We closed it all for $35 and have a to file a tax return at the end of the year marked “final”. To start up the new business, it cost Mary $85. THAT’S IT.

So, again, if we both didn’t have such a complex about creating an agreement through a lawyer and just DIY’ed the operating agreement and the programmer’s agreement, we would have been a lot better off.  I am certain we would have made mistakes but after we found a lawyer who was a good fit for us, we would have been able to get it right. You can amend agreements. The parties involved with the operating agreement and the programmer were benevolent, well known, trusted individuals, who would have quite likely been keen amending an original DIY style agreement.

In addition, I would like to make a call for incubators to put a rubric together for scared newbies when it comes to legal issues: for operating agreements, for agreements between contractors, for human resources; just to get an embryonic company started. I know incubators have to tread lightly about legal issues as they cannot claim to give legal advice, so this is not an easy call.

But, it would have so helpful to have some general points to think about rather than just going through an example legal agreement and trying to make sense of it. Legal language is complex, powerful and specific, which is why folks go to law school. It would have been helpful to have someone explain what goes into a legal agreement, what all the sections are for, and what are the typical issues one must consider. Just a little help for the severely legally insecure, a “agreements for dummies” explanation would be great.


About LornaGovier

Lorna Govier lives in Tucson, AZ.
This entry was posted in The Startup (iTipArtists), Uncategorized. Bookmark the permalink.

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