What does an outside general counsel do? I’ve been getting this question more often. I think most startup founder’s executive teams are used to working with a big startup law firm to handle all their financings, the M&A for sure. Yet, lost in the shuffle is another service that law firms can provide, which is just general counsel work. Let’s take a look at what an outside general counsel does as well as the benefits to having one on your side. They are kind of like the equivalent to Kruze Accounting, but on the legal side.
What Does an Outside General Counsel Do:
- Commercial Contracts
- Licensing Agreements
- IP Protection
- Strategic transactions like fundraising, M&A
- Corporate governance
- Board and shareholder resolutions
- Shareholder Meetings & Minutes
It is helpful to have a legal experienced person be able to roll through commercial vendor contracts to make sure you don’t sign a bad contract. Outside general counsels work with a lot of different companies so they see what kind of market, what companies should be signing up. Just by not signing one bad contract per year, you could effectively pay for the general, outside general counsel service.
Another benefit to having an outside general counsel is that you will be able to close deals a lot faster since the counsel will be able to get through the contract a lot faster than a founder trying to understand the legal jargon.
If you’re going to license your technology or in-license something, you want to have someone read through this and pay attention to all the details. Again, continuity is really important. The fact that they know your business, work with your business all the time, they will know the kind of edge cases that you need to worry about if you’re signing a contract.
A lot of startups, even though they’re building cool intellectual property, will drag their feet or worst of all, not protect their IP through patents or other types of mechanisms like copyright trademark.
Strategic Transactions like Fundraising and M&A
Outside general counsels can also handle strategic transactions like fundraising and M&A. Now, some companies have an outside general counsel but then they still like to use the big kind of bulge bracket startup law firms to execute on these deals or the outside general counsel will support that firm. Sometimes it’s more about presence, brand building or about making sure the investors’ counsel knows that you have someone who knows their stuff.
These are reasons why people hire the big outside firms. However, practically speaking, the outside general counsel can close those deals for you and also guide you through M&A because again, they know the company.
Board and Shareholder Resolutions, Consents, Meetings & Minutes
There’s also a whole other component of compliance around board meetings, board resolutions, board minutes, documenting all the consents. You want to have a paper trail for everything discussed at your board meeting, 409A valuations, stock option issuance, key decisions, documenting that the board has approved the financial plan for the year. An outside general counsel can help you with these responsibilities.
Corporate governance is good governance.The outside general counsel is going to make sure you have your board meetings. To recap, there are a ton of duties that an outside general counsel can do for your startup. Their hourly rate might be higher than what a full-time general counsel pencils out to, but because you’re only using them when you need them, but they are on-demand for lack of a better word, you’re usually going to save quite a bit of money using an outside service. It’s a really helpful service. We have a firm that we work with that we love that does this for us. Over time, they just become part of your team. Also, as a founder, you don’t have to be the only one to interface with them. As your team builds trust and as you build trust with this lawyer, you can start having your executive team reach out to them. By doing so, you are out of a bottleneck position. It helps you get business done quicker.
This also lightens your load a little bit and that continuity and institutional knowledge are just so valuable to have in a lawyer on your side. That’s what a startup’s outside legal counsel does. I hope this helps.