Startup Legal Issues
Startup Legal Costs
How much is the right amount to spend on legal costs for your startup? $1,000? $10,000? Or nothing at all?
Startup budgets only go so far and raising additional capital is proving to be much more difficult than you thought it would be. Now, you realize there are several legal issues that must be addressed before you open your doors for business.
So how much do you absolutely need to spend startup legal costs?
Startup legal costs vary wildly depending on the shape and scope of the business that is being started. While a simple, home-based small business may only incur a few hundred dollars in startup legal fees, an incorporated entity leveraging proprietary manufacturing techniques could spend tens of thousands of dollars on attorneys and other legal expenses.
The key to managing startup legal fees is to know the scope of your exposure and understand the potential consequences of legal inaction. In many cases, the cost of securing competent legal advice far outweighs the risks associated with attempting a DIY legal approach.
- Attorney Fees. Attorney fees represent the bulk of legal expenses for most entrepreneurs. Business attorney rates vary, but typically fall in the $200 per hour range. For a simple startup, a two-hour consultation and review may suffice. However, it's not unusual for startup to incur attorney fees of $1,500 to $5,000.
- Naming. Formal trademark searches and registrations represent added startup costs for entrepreneurs. You can mitigate this expense by performing an informal trademark search before selecting a name and logo. However, as your business grows, you should invest in a formal trademark search and registration to protect your brand.
- Incorporation. Incorporation can substantially increase startup legal costs. Although it's possible to incorporate your business without the assistance of an attorney, it's beneficial to consult an attorney at some point in the process - even if you are performing the bulk of the paperwork on your own.
- Licenses & Registrations. Fees for licenses and registrations can vary from pocket change to hundreds or even thousands of dollars, depending on your industry requirements. You can't avoid paying these fees, but by obtaining all of the necessary licenses and registrations you can avoid the fines that are associated with non-compliance.
- Investment Costs. If your startup intends to pursue substantial investment funding from venture capitalists or other sources, your legal costs will automatically increase because investors will want to make sure your company (and their investments) enjoy full legal protection.
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