Establishing an Effective Outside General Counsel Relationship

Every new business must deal with various legal and regulatory requirements; however, technology-based companies looking to grow and expand must be particularly mindful of the potential problems and issues in this area.  While many entrepreneurs believe they can do their own contracts and use “self-help” books to form and organize their business, an experienced attorney can be invaluable member of the launch group for any fledgling business.  While the role of counsel varies depending on the specific type of business and related activities, good legal advice will be essential in each of the following situations: 

  • Selection of the proper form of legal entity for the new business and completion of formal legal requirements to properly form and organize the chosen entity.
  • Advice to the founders and other senior managers on their ongoing legal duties and responsibilities to current and former employers and practical assistance in helping the founders make the transition from their current employment activities without violating any general legal or contractual duties they might have to their employers.
  • Preparation of shareholders’ agreements among the founders and among the founders and outside investors.
  • Preparation and negotiation of key contracts between the company and its vendors, customers, employees and consultants.
  • Development and implementation of strategies for perfecting and protecting the company’s intellectual property rights.
  • Advice regarding compliance with statutory financial reporting and other disclosure requirements.
  • Advice regarding compliance issues in other substantive legal areas, including laws and regulations pertaining to taxation, labor and employment, real estate, antitrust and competition and securities offerings.

Assuming the attorney has the requisite skills and experience to advise the founders on each of the matters mentioned above (e.g., selection of the proper form of entity, preparation of agreements among the founders and among the founders and outside stakeholders; contract drafting and compliance requirements), the actual terms of engagement may provide that the attorney will render “outside general counsel services” to the selected legal entity and the engagement letter will typically enumerate specific tasks and activities such as business/legal advice, securities law compliance and preparation of offering documents, contract review and negotiation, employment matters, corporate governance counseling, management of intellectual property rights and selection and oversight of outside counsel handling litigation matters.  The engagement letter should identify the attorney who will be principally responsible for managing the engagement and he or she should be the person that the senior managers of the entity can turn to for advice on how to address a specific legal or business issue.  Other attorneys working with the “principal attorney” may be involved in providing certain services under the engagement letter; however, the principal attorney must be committed to staying involved with the engagement and carefully monitoring the work of all attorneys involved and making sure that the work adheres to mutually agreed schedules and budgets and that the relationship is proceeding as expected.

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