#1261 Constantine Karides on How To Use Your Lawyer To Win In Startups
Oct 14, 2023
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Constantine Karides, Partner at Reed Smith's Financial Industry Group, discusses evaluating law firms, testing lawyers for startups, making financial decisions, hiring general counsel, and choosing the right law firm for startups.
Founders should carefully evaluate and choose a law firm that understands their business objectives and has knowledge of their technology and industry to ensure a good fit.
When starting a business, founders need to make specific legal decisions, such as selecting the appropriate corporate form and properly allocating equity, to establish a solid foundation and minimize the risk of legal debt and challenges as the company grows.
Deep dives
Importance of Choosing the Right Law Firm for Startup Founders
When starting a company, it is crucial to carefully evaluate and choose a law firm that understands your business objectives and has knowledge of your technology and industry. Founders should ensure that their lawyers have the expertise and technological range to support their business processes. It is recommended to have thoughtful and engaging conversations with potential law firms to test their competency and ensure a good fit. Additionally, founders should be comfortable asking questions and seeking advice from their legal team to make informed decisions. Building the right legal foundation is essential for long-term success as it impacts various aspects of the business, including fundraising, hiring, and cap table management.
Key Decisions to Get Right for Legal Success
When starting a business, founders need to make specific legal decisions to establish a solid foundation and avoid future legal complications. One important decision is selecting the appropriate corporate form that aligns with their business objectives. This decision affects wealth creation, preservation, and potential tax benefits. Collaborating with professionals in wealth management, trust and estate planning, and tax planning can ensure the right setup from the beginning. Another crucial legal aspect is properly allocating equity, considering factors like ownership control, future dilution, and protecting the founder's interest. Founders must conscientiously choose equity recipients to avoid disputes and conflicts in the early stages. By focusing on these decisions, founders minimize the risk of legal debt and legal challenges as the company grows.
Avoiding Litigation and Dealing with Disputes
Litigation can be financially burdensome and detrimental to a young startup. Founders should strive to avoid litigation but also be prepared to navigate disputes effectively. When conflicts arise, it is essential to approach negotiations calmly, seeking resolution and using mediation when appropriate. Startups should prioritize hiring a law firm known for its experience in dispute resolution and one that can handle internal disputes, such as equity allocation disagreements, departures of key personnel, or intellectual property issues. By protecting the company's interests, making well-informed decisions, and relying on trusted legal advice, startups can reduce the risks associated with litigation and maintain their focus on business growth.
Choosing the Right Law Firm and Managing Legal Costs
Startup founders should carefully evaluate law firms and establish a strong working relationship with their chosen legal counsel. It is essential to find a law firm that understands the startup landscape and can provide tailored legal services. When engaging with a law firm, founders can discuss their budget, legal expectations, and specific legal needs, prompting transparent conversations about pricing and ensuring alignment. Founders should also assess the efficiency of a law firm, ensuring that the assigned team is appropriately sized for the task at hand and comprised of experienced lawyers. By considering these factors, founders can build a positive and cost-effective relationship with their law firms, optimizing legal services while controlling costs.
Constantine Karides is a partner in Reed Smith’s Financial Industry Group, Office Managing Partner of the firm’s Miami office, and the co-lead for On Chain: Reed Smith’s Crypto & Digital Assets Group. This discussion was recorded at the BUILD Summit in New York. In this conversation, we discuss what a startup founder can do to evaluate law firms, test their competency, and how to work with them in the early days of your company to ensure the greatest success possible.
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