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Startup Law: How can a startup lawyer be more useful than just preventing things from going wrong?

I looked at this question a couple of days ago, and really failed to come up with a straight answer, or a strategy to answer it. But I will attempt it nonetheless.The first point that needs to be raised is that the law begins when common morality ends. Another way of expressing that is that common belief systems among like minded individuals are flexible, and reflect a multitude of competing ideas. But an equilibrium is achieved through leadership and common purpose. The law is far more fixed in nature. It also assumes the worst and works towards limiting the damage. It often a guard rail, limiting people's actions from going out of bounds.Traditionally, the law concerned itself with what was illegal. Namely, everything is acceptable unless it was specifically banned. But other traditions have taken the opposite tack, namely that everything is banned unless specifically allowed. Its the difference between roman jurisprudence and the prussian interpretation of roman jurisprudence.In a previous universe, I worked on military contracts. The army took the notion that "everything is illegal unless specifically allowed". While the good folks in the navy took the opposite tack, namely that pretty much everything was permitted unless specifically prohibited.And in our current lawless economy, there are people that insist that you should be allowed to do whatever it pleases them. So enter companies like Uber predicated on violating an entire class of municipal ordinances. The problem is that the self same companies that believe that they are not bound by the regulatory environment, do believe that individuals within the self same corporation are bound by the rules and regulations within the company. So they operate on a deterministic basis. Its the proverbial "we are not ordering you to do anything, but we all must agree these are the rules". Which requires individuals to abdicate their moral authority to the corporation. Which is where group think sinks in.Which is in stark contrast to the teachings of the roman catholic faith, where forty religious orders compete on the battle field of metaphysical truth. No one order has a monopoly, and no one individual is unbound from their moral authority. At the end of the day "It is so ordered". That is how organizational discipline is achieved. You don't have to agree to anything, but if the hierarchy puts forward a consensus opinion, and its is so ordered, then that is the official position. That is the traditional blah-blah-blah vademecum. If it makes zero sense, since its a consensus opinion.The protestants take the opposite tack, "there is only one truth, and if you disagree its because you have not understood, or are flaunting the Law". Because in the prussian system if there is one metaphysical truth, there can be only one law.But that is obviously problematic when you have competing truth values, within the same society. Jesus Christ did walk in the market and call the money changers evil, which undermined Rome's authority to tax. And he did walk into the Holy Temple, and proclaimed himself above their Devine Law. And He stated he was the Son of God. It was within their moral right, to demand that He be put to death. And Pontius Pilate gave in to the wishes of the crowd (the majority) and had Him crucified. The reason this is taught in catechism 101 is because that is the result one can look forward to, when the law follows the wishes of the crowd. That is the result when you force the legal system to parody the common held belief systems. That is what happens when a singular metaphysical truth is held up as law. People of different belief systems, get slaughtered. And then nobody renders onto Caesar what is Caesar's, namely a tax tribute.Which is why we still use roman jurisprudence. Because it was born at a time when there were 1000 competing deities. And no one metaphysical truth could be held above the rest. Because you cannot run a civilization with singular cultural norms. Which is why the law concerns itself with the chain of custody, and rules of evidence. And that is why the law must stand outside of morality, because nobody in a civilized court of law can determine what is right and what is not.Which is also the reason why traditionally most of the members of the US Supreme Court are catholics. Even "progressive" Obama put two catholics (Keagan and Sottomayor) on the bench. Because even a rabble rousing socialist as Sottomayor had to take exception with forcing 110,000 US Nuns to pay for their birth control and abortion rights. Because it defies reason.The above hopefully can separate the issue of "what is law" and what is "morality". We know what the law is, but we don't know what the presumptuous aspirations of moral people are. And nor should we care.The first duty of legal counsel is to educate their client. Because principal costs money. Because 99% of all entrepreneurs of the scientific variety don't understand the first thing about the law.***The biggest problem legal professionals face is that people believe "they re right" and when things go bad they expect lawyers to re-establish right. Which never happens, because the law does not really concern itself with right and wrong.People also believe that the law is designed to cover every eventuality. It cannot and should not. Only despotic authoritarian systems insist that the law (mostly administrative abuse in the form of rules and regulations) should cover every eventuality. The law is a pretty general "no trust system". The particularity of interest in any transaction, can be made legal bound only through the artifice of contract.Its contract that most people fail to grasp. Namely that their specific issues are contract bound, not morality bound, or lawfully bound.But bound is precisely that, its a boundary. The "sum", in latin, has many connotations. Its essentially the moral boundary that people chose to operate within. Its also a physical boundary. As in a plot of land being demarcated by its width and depth. Its a geometric boundary. The sum of which is the acreage. Which is why we use sum to indicate the measurements, say 100ft by 200ft sums up to 20,000 sq feet. Some would say cogito ergo sum (I think therefore I am), and other would say sum ergo cogito (I am therefore I think). Some others yet insist on sum et cogito (I am and I think). Because you think ahead so that you can protect and avoid harming the sum. The sum is the sum of my moral choices. The cogito is the sum of my mental skills. And the et is how I operate in reality, in this case, via grammatical rules.I am bound by the consequences of my moral choices. I am also bound by two "no trust" systems: accounting, and jurisprudence. How I put those three together is the sum of who I am.I bring this up because people show up in legal offices with the intent of codifying their power relationships in contract. And they need to understand that the contract cannot reflect their power over others.***Corporations are deterministic cultural organizations. They are duty bound and have a fiduciary responsibility to their shareholders, to operate within the law, under generally accepted accounting practices, and to eliminate as much of the risk as is humanly possible. Because shareholders do not exist in a vacuum. Its the surplus capital they set aside for retirement, medical bills and their children's education. So corporations are duty bound to preserve capital and grow it in excess of the risk premium employed, and in excess of the inflation present in the medium of exchange, also known as currency. The Corporation's job is to eliminate risk.***And entrepreneurial organization has the opposite purpose. Its there to take risk capital and apply it to risky disruptive business ventures. Its job is to explore new possibilities. Its in the business of discovery and exploration. Its in the risk business. Its is duty bound to risk the entire capital in the pursuit of innovation, new scientific discovery, and in extermediating inefficiencies in the system.In europe, a corporate bankruptcy will place you in jail. Because burning through capital is not deemed legal. Its risk averse in the extreme. It does not matter what class of investor commits what class of risk capital. You go under you go to jail. Its the debtor's prison of Dickensian lore.In the US that is not the case. Qualified investors can risk other people's capital with impunity.***We are of course concerned with this last class of entrepreneurs. And how can a legal professional help them...I believe that 99% of most entrepreneurs know absolutely nothing about the law. And that is the problem. So they don't avail themselves of all the benefits that understanding the law affords them. The same case can be made about accounting, its not mathematics.If I were a practicing lawyer trying to address the entrepreneurial market, as opposed to the corporate market, I would start by educating my target audience. But that cannot be done one to one. I would create a legal startup seminar for entrepreneurs.What I would cover with a series of seminars is the following:1) The law does not concern itself with morality.2) A basic introduction to contract.3) A basic introduction to regulatory issues.4) A basic introduction to no-trust systems.5) Investors want to protect capital, entrepreneurs are statistically likely to burn it.6) Investors have contracts designed to mitigate that.7) A contract is a two way street: it protects the employer from the employee, and the employee from the employer.8) The contract is not a tool of domination, its a boundary.9) Anything within the sum total of one's authority is permissible, anything outside the sum is subject to the contract.10) Operating within the contract is not subject to the law, rules or regulations. Those are moral choices.11) Investors have the right to set boundaries. Because they have a fiduciary responsibility to do so. So if a class of investors, say the venture capital industry insist on certain rules its not because "its the law" or because "its the right thing to do" or because "they are right and you are wrong". Its because its how they mitigate risk.12) Accounting is also a no trust system. And it has the full authority of the State to enforce the rules. Violating accounting rules is neither right nor morally wrong. Its simply a mathematical system. But violating accounting rules is an offense punishable by the law. It can be a fine, or a term of incarceration.13) All business is predicated on trust. Absent trust all business ceases. Because contracts can never keep up with all the myriad of business deals that get cooked up. What trust is predicated on, is generally accepted accounting practices. Because people that do not respect accounting, cannot be individually trusted. No investor will invest in an untrustworthy person, regardless of what contract their skilled lawyers can come up with.14) The law either says "you are free to do whatever you want, within these boundaries" (capitalism) or it says "you can only do what is specifically allowed, everything else is out of bounds" (totalitarianism, communism or whatever flavor of the month they are calling it). That is the regulatory environment.15) Ideas cannot be patented. Patents are based on process. Patents are monopolies. Monopolies are bad for business. Which is why they are allowed for limited times. Copyright only give rights to expression. And trademarks are perpetual symbols of Trust and Quality. Intellectual property is of course a misnomer. IP is mostly a Trade Secret under State law. Its an Employment Contract issue only.16) The only thing of value on the Balance Sheet is the Trademark Equity. Also known as Good Will. Because if you are shoving a contract in your clients face, he will not have goodwill. And if your interaction with your vendors is based on a contract, they will not have any goodwill either. Again, the object here would be to explain that contracts are out of bound statements, and are generally employed where trust fails.17) Domination is no substitute for leadership. People develop psychological resistance to being dominated. They develop resistance to being micro-managed. All rule based systems are collectivist attempts at domination. Which is why contract based industries are barely profitable. Capital intensive industries, like automakers or airlines are rule based systems. They have unions, and operate on union rules. Which is why they always end up in bankruptcy court. In order to protect the heavy investments necessary, they undermine their own profitability. Process is also deterministic. Which is why its rule based. Entrepreneurship is the exact opposite. Which is why its problematic. But even entrepreneurship has to operate within certain rules, namely the rules investors chose to protect themselves via contract, and within the rules of accounting. But you cannot deterministically, mechanically produce innovation. Which means the contract has to be a boundary or a limit, but not a process by which entrepreneurs dominate their economic charges.18) Most entrepreneurs want to know what are the mechanics of corporation formation. Also known as incorporation. Most entrepreneurs don't understand that if no currency is transacted, as far as the government is concerned, the business does not exist. Incorporation is only concerned with taxable events. Absent taxation, the company does not exist. Until such time as you are invoicing, and provided you have not taken somebody's money as investment (including your own), you have absolutely nothing to report to the Internal Revenue Service. They get really pissy if you file zero revenue corporate filings.But investors do care how they protect their capital. And they care even more about how they can mitigate and lower tax collection. Which means they choose tax efficient vehicles for their investments. So how VCs like to incorporate, has absolutely nothing to do with right and wrong, and everything to do with tax law. Even if an entrepreneur does not want to go the investment route, if it assumes that one day it might want to do so, then the corporation has at the very least be compatible with investment vehicles preferred by institutional investors (e.g. no llc's, but S Corps that can be one-time converted to C Corps).19) There is a substantial difference in the law between a "moral person" and a "corporation". And in most of Europe most corporations must have a moral person to take fiduciary responsibility. In the US the line is a little blurry. Regardless, leadership is morality bound to its employees, to its board of directors and to its shareholders. It also has legal responsibilities with tax authorities. And its legally bound to generally accepted accounting practices. Entrepreneurs get the three confused. And then they get upset when they take investment money and they realize they are just employees of the corporation. Yes, they are also shareholders, but in daily practice, they have to treat themselves as employees.20) The single most important contribution that legal professionals can make, is address partner relations. Because partners in a business are both moral persons, legal entities, and shareholders. And the moment that co-founders in a business disagree about metaphysical truth, the business is headed towards dissolution. I would say that 90% of all business disagreements among business partners revolves around "truth-values" which is what metaphysical truth goes by today. The legal professional should be very clear in explaining that the law does not care either way. And that a contract cannot enforce that either. If you want to foster "corporate culture", that is a moral choice. And all partners should agree on day one. If serious disagreements occur, then the organization goes out of bounds. And only a contract can resolve the dissolution of the organization. A contract cannot resolve the dispute, because the law does not care who is right or wrong. But in the eventuality that things go out of bounds, who gets to decide what? How are the shareholders represented? Under what authority does the board operate? Who gets to decide what where and when? Only a contract can spell that out. And that requires a legal professional.Once entrepreneurs understand the above, you can make a serious case for providing them legal services.They need to understand what can go wrong. They need to understand that the law will not protect the investor, the entrepreneur or the employee if the operation goes out of bounds. Only a contract can do that.And if something goes wrong, what is the exit strategy? What are the rules to determine the exit strategy? What can the shareholders expect? What can management expect? What can employees expect?. The law does not care if a company goes out of business. It only cares if accounting rules were broken, and who gets what of the remaining assets. The law is only concerned with the orderly disposition, and orderly dissolution of the corporate entity.The only case a legal professional can do is make a case for the worst case. Set the boundaries and provide a clear strategy for exiting the business.21) Entrepreneurs also need to understand that the law is highly specialized. You cannot call a criminal lawyer to resolve a divorce proceeding. And by the same token if you cook the books, you need a tax lawyer. Corporations in heavily regulated industries, need lawyers that specialize in that industry. And you will not call an insurance liability legal specialist, if you want to negotiate landing rights at a major airport. By the same token you cannot call on a lawyer practicing patent law with a specialization in microbiology if you want to file a patent on a communications semiconductor. The law is highly specialized. Corporate law is one thing, entrepreneurship requires a different set professional practices.22) Most entrepreneurship law practices revolves around VC needs. That is a serious conflict of interest, process and adjudication. That is driven by the fact that VCs have money. Their money their rules. And entrepreneurs have no money. So a gun is placed to the temple of some twenty something technical nerd and $50k is extracted under duress to create a legal entity sympathetic to the investor's needs. So far so good. Because time is money and lawyers have 12+4+3 years of education to pay for. Another 3 if they practice patent law, and say they also have an advanced degree in chemistry.So to answer the question I would provide:a) A three weekend seminar on the law for entrepreneurs.b) A set of boilerplate agreements that can keep the legal costs down at incorporation.c) A boilerplate "all legal requirements to get a tax id"d) A co-founders questionnaire that raises most of the known problems, which forces discussion and resolution of the most common "misunderstandings".e) A boilerplate partners agreement.f) A boilerplate articles of incorporation.Or if the co-founders questionnaire raises serious problematics:g) A human reviewed partner's agreement and articles.h) Boilerplate corporate IP protection and Employee Contract that reflects the corporations IP rights.i) Boilerplate vendor/subcontractor/consultant contract with IP assignment to corporation.Make the above an Introductory Seminar Series.And make it a requirement to gaining access to more specialized seminars. Like one on patents, copyrights and trademarks. EtcThen make a strong case for review the moment the business gets traction. Or code is written and IP becomes a real concern. Or potential investors are being sought and corporate documentation must be finessed to reflect that.The point is that entrepreneurs don't have the money to get proper legal counsel. But if you educate them at a reasonable dollar figure because you are squeezing 50 people in the same room, they will call when its reasonable they should do so. Its also important to understand that 90% of business incorporation leads absolutely nowhere. So a "boilerplate" agreement should be boilerplate and very cheap, but cover all they need to incorporate a business. But they also need to understand that a boilerplate legal incorporation might be completely wrong for their specific needs. So some form of legal counsel must be brought into the equation. But that costs money. Serious money. So they should be advised to go through all the partnership questionnaires and seriously look at control issues, and resolve them first. And only then have a lawyer spend a couple of hours reviewing them and making recommendations.The money of course will come when those companies grow and need big-people legal agreements. Because every inflection in the business needs new legal frameworks. New partners or new investors will obviously require that.I would also make the case that eventually partner-shareholders need representation when dealing with professional investors. But again here we have the same problem we started out from, namely that partner-shareholders have stock options only in their wallets, and the investors have the cash.So you have to look at it differently. If you have a VC you are supporting you could be looking at 20 contracts a year at 20-50k. Which is a good chunk of change. But if you are looking to provide advice to startups you will need to address the fact that no-money entrepreneurs have little cash to spare. Which means its a numbers name, and you need to get organized around processing the greatest amount of incorporations at the lowest possible cost. And then growing the legal practice around their changing needs. Hopefully if they understand the limits of the law, and the strengths of the Contract, they will seek the help they need, when they see the need. But you need to educate them as to the specific nature of the need first.Jurisprudence is a magnificent edifice of grand intellectual stature. And so is accounting. And yet people jump into business not knowing the first thing about either. That is the problem. If you don't know that you need a hammer and nails to build a house, chances are you will not complete the house. And the by the time the house collapses, its useless to call in a lawyer.The only value a lawyer has in a startup is the value that he/she creates within that startup. The fact that they do not see the value, or act on that value is on you. Because ultimately if they fail, that is not your moral responsibility. Your responsibility is purely ethical. And until such times as both sides of the equation get that last statement, nobody is availing themselves of the Grand Edifice.Bridge the gap, the money will follow.Or go for the money and screw the entrepreneurs.Long answer... if it was clear in my mind, I could have provided a shorter answer. Thanks for the a2a, sorry for the delay in responding.

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