When Should a Start-Up Hire Its First In House Legal Counsel?

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Many companies around the globe hire In House Legal Counsel to run the legal matters of the company.

This trend is increasing not only among big companies, public and global, but also among small and local companies.

From the point of view of the start-up, the question is when is the right time to hire an In House legal counsel.

What is the specific event or moment that moves the start-up from working with an extenral law firm (usually, the same firm that worked with the start-up since its early days), towards working with an In House legal counsel?

The most common answer addresses the size of the company and the legal expenses.

Commonly, start-up companies will decide to hire an In House legal counsel when they have hired

80-100 employees.

Another factor is the legal expenses, since at some point, it will be more economical to hire an In House legal counsel rather than to continue working with an external one.

Additionally, the In House legal counsel efficiently manages the array of external legal consultants of the company, and ensures that legal costs are reduced over time.

In addition to size and legal costs, a start-up company should be aware of the additional benefits of hiring an In House legal counsel.

Unlike the external lawyer, an In House legal counsel lives and breathes the company and serves only one client.

As such, In House legal counsel knows the company “inside out,” enjoying first-hand knowledge of the management, the products and the services, the processes and methods, the business model and the goals and challenges of the company.

In addition, there is a built-in advantage to an In House legal counsel.

Legal consulting that comes from within the company, as an integral and inseparable part of the company, much like input from the R&D division, finance, sales and HR, will often be faster, more precise and more efficient.

When a start-up decides that it’s the right time for it to hire an In House legal counselt, it determines what qualities it seeks in its first legal consultant.

Should the consultant have experience in a variety of fields, or have an understanding in a specific field that is more significant for the company, like intellectual property?

Of course, the answer depends on the specific needs of the company.

However, generally it’s recommended that a start-up should look for a lawyer with experience and expertise in the following fields:

• Corporative Governance and Regulatory Compliance;

• Financing and Public Offerings;

• Regulation;

• Intellectual Property;

• Commercial and Contract Law;

• Labor Law;

• Past experience as an In House legal counsel.

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A well-known challenge that many start-ups frequently face when they begin growing is that while the load of legal work continues to grow and increasingly needs to be managed on a regular basis

(in most cases, by the VP of Finance/CFO), the start-up has yet to reach the point in which it will consider hiring an In House legal counsel, even though such a move would be both efficient and economical.

As a result, the company avoids hiring an In House legal counsel at precisely that point when it most needs one.

A possible solution to this challenge is to hire an outsourced In House legal counsel, who can work in a flexible format, according to demand and according to the need.

This model ensures that the legal consultation will be given at the right times, according to pre-determined needs and a fixed budget.

Consequently, company objectives can be achieved while saving costs.

It’s important to remember, that even in this model, the outsourced legal consultant, who has the experience and expertise outlined above, will work in the company’s offices and will function as a de facto In House legal counsel.