Corporate law · Founder Agreement

Can one trust the lawyer to make a cofounder agreement if the other cofounder is paying him?

Maria Garnier Operations Coordinator en Socialatom Group

January 26th, 2017

Is it foolish for one cofounder to trust the lawyer to get the startup incorporated and create a cofounder agreement if the other cofounder is going to pay for the lawyer?

I am at the point where it might have to back out of the startup if I will need to spend the money on a lawyer.

Since I am told by more that one person that 95% of start ups do not go on to succeed, I have no interest in spending money on it.

I don't want to be at risk so unless I find a solution, I do not know how I can proceed.

Kevin Brown Experienced IT Professional

Last updated on January 27th, 2017


(To your subject line, Yes to the question in your first sentence.)

[Although I like Jeff Cunningham's version of 'No' better.]

I would also add: If the risk gives you pause, you should probably not be working at a startup, let alone be a partner in one.

REVELATION: Startups are not for everyone.

In fact, there are lots of reasons NOT to work at a startup. If you don't believe in the product, if the risk does not excite you, then get out! There is no shame in that. There is also no shame in trying a startup and failing. There is a little shame in looking back on your life and thinking, "If I had only...." Still, you have to assess your tolerance for risk and make the decisions as best you can with the facts you have.

As for spending money on an attorney, I know a startup that is still struggling seven years in, because they DIDN'T spend money on an attorney when they should have. I am not crazy about spending money on attorneys fees, but paying reasonable fees for a qualified attorney's advice and services is SO worth it when you see the side that didn't. The company made a very reasonable mistake in a contract they drew up themselves and it cost them their most promising product line.

Decide if a start-up is for you. If it is, then spend the money and don't look back. You HAVE made the right decision. There are times when it is the right choice and this is one of those times.

Jeff Cunningham Partner at Seyfarth Shaw

January 26th, 2017

So, I'm a lawyer and I work with startups quite frequently. With the facts that are laid out in your question (one person is paying for the lawyer, the other is not), I'll assume that the person paying is the lawyer's client. In that scenario, you would have an adverse interest to the one who is paying, and the lawyer should advise you that he or she does not represent you and that you should not rely on his or her advice. That doesn't mean that the lawyer or the person paying are out to get you, only that the lawyer is assuming no duty to look out for your interests, nor should they.

A different scenario, and one I frequently see, is one in which the parties (even if it is just one party) contribute money to the new entity, and it is the new entity that hires the lawyer; not either one of the founders. In that case, the lawyer's duty is to the new entity and not to either founder. You have three legal "persons" involved, each with its own interests.

The short story is that you should never expect for someone else's lawyer to look out for you. They are ethically restrained from doing so, and they risk malpractice if they don't observe that.

Happy to discuss your particular situation offline.

Juan Zarco Managing Director, Silicon Valley Ventures Growth Partners llp

January 26th, 2017

I refer to this blog in response to when to bring a lawyer. But I would not be concerned with the inability to finance the legal services. Many known SV law firms allow for accruing legal costs until a specific round of financing is achieved. Still I suggest to read my other blogs to be able to control such costs regardless -- even though postponed, legal costs can go through the roof -- note what happened to a Theranos ex-employee defending himself in less than a year.

Peter Bassa Failure = Learning = Success.

January 27th, 2017

Maria, you can get a cofounder agreement thats generic online and this does the trick in most cases. If you need direction where to find one that is good PM me. I know a few sources.

Juan Zarco Managing Director, Silicon Valley Ventures Growth Partners llp

January 28th, 2017

Maria -- it looks to me that you are in Colombia and not the USA. My advice related to companies operating in the U.S., although I have met attorneys in Bogota. Nonetheless, any counsel working for its/her/his client will represent the interests of that client paying its bills. That alone is adversarial to your interests. Look at the movie, Social Network, to what happened to a co-founder. In fact, the whole movie follows the litigation. And even standard agreements will be modified by that client's counsel. The lawyer has to earn his billable hours.