As a startup or other small business entrepreneur, it should come as no surprise that your business will have to enter into many different kinds of agreements. In terms of how you utilize lawyers in negotiating and documenting those agreements, there are basically three approaches that you, as the entrepreneur, can take:

  • Approach #1: You can pretend that lawyers aren’t necessary for your agreements because you don’t require documents specially customized for you. Instead, you rely upon documents prepared by other attorneys (whom you may or may not know) for other transactions. These documents may be provided by a non-lawyer document service or as a free/promotional service of a law firm that is not representing you in the transaction. With this approach, you can often utilize a short free consultation with an attorney that’s often provided.
  • Approach #2: You can retain an attorney to represent you in the transaction, and you delegate to the attorney the sole responsibility to prepare and/or review the agreements.
  • Approach #3: You can retain an attorney to represent you in the transaction with the responsibility to prepare and/or review the agreements, but you retain “ownership” of the agreements and be “compulsive” about making sure that you understand and knowingly approve or disapprove of each of the material terms and conditions, and nuances, of those agreements.

Approach #1 (not consulting with an attorney) is an incredibly bad idea because it fails to acknowledge the true nature and significance of the attorney’s role, which is sometimes estimated to be only 5-10% inspiration (or otherwise the result of professional legal training and experience), the remaining balance being “perspiration” (or mere effort and common sense). However, that 5-10% is vital if needed, and, unfortunately, if you haven’t retained an attorney to protect your interest in the contemplated transaction, you often won’t know about serious issues until they manifest – most likely as an inconvenient and unpleasant surprise – in the future.

And the “free” consultation is often not much better than “non-consultation” because, as a practical matter, there is usually not much any lawyer can do in reviewing a complicated agreement prepared by another attorney without spending a meaningful period of time to understand the document and your unique needs and expectations and verifying that a document acceptable to you reflects the foregoing. If you opt to pay the consulting attorney for the additional time, you have changed your “approach” to either Approach #2 or Approach #3 with the possible disadvantage of having initially chosen the attorney primarily because the attorney appeared on a list of “free consultants.” As such, you will probably not have explored the possibility of retaining other attorneys much more experienced in addressing your specific requirements. In short, the “free” consultation is usually a marketing ploy and distraction and may lead you to a less than optimum selection of the most qualified legal representation.

Approach #2 (retaining an attorney and delegating all of the responsibility for the agreements to that attorney) is also a bad idea with lots of hidden costs. There will be many times when you, in an executive capacity in your business, will need a good functional understanding of existing agreements in order to properly verify mutual performance under existing agreements and to negotiate additional new agreements, and you may not always have available at your side – or be able to afford – that knowledgeable attorney.

Approach #3 (retaining an attorney but remaining actively involved in the negotiation and documentation of the agreements) makes the most sense, in part – but not only – because of the practical considerations of the lawyer’s availability and affordability mentioned immediately above. Approach #3 is also the most intelligent course of action for the committed entrepreneur because the documented legal solutions created in response the 7 Major Development Life Cycle Events (discussed in detail on our website www.companycounsel.com) affect anything and everything that your startup or other small business will ever want to do, and therefor effectively constitute your company’s DNA…and it’s just as important as it sounds.

In summary, you should not have to be a lawyer in order to understand documents prepared or otherwise approved by your attorney. Agreements that are ambiguous and/or confusing to you should always be returned unsigned for further clarification. If you’re smart enough to manage your business, you are certainly capable of understanding the material terms and conditions, and nuances, of the agreements to which your company is a party, as long as those agreements have been clearly and unambiguously drafted by counsel.