For many startups, legal matters are often managed by external law firms or handled by the founders themselves in the early stages. But as your company grows and legal complexities increase, relying on outside counsel may no longer be enough. At some point, it makes sense to bring legal expertise in-house by hiring a general counsel (GC).
In this post, we’ll explore when startups should consider hiring in-house legal counsel, the key milestones where external legal help may not suffice, and the benefits of having a dedicated legal expert as part of your core team.
Why General Counsel Is Important for Growing Startups
General counsel is an in-house attorney responsible for overseeing a company’s legal matters. Unlike external legal counsel, a GC is embedded within the startup and becomes a trusted advisor who understands both the legal and business sides of the operation. As startups scale, legal risks increase, and having a general counsel can help you navigate these challenges more efficiently.
Stage 1: Seed Stage – External Legal Help Is Enough
In the early seed stage of your startup, your legal needs are relatively straightforward and can usually be handled by external law firms. At this point, you’ll need help with:
• Incorporation and Structuring: Choosing the right legal entity (e.g., LLC, C-Corp).
• Founder Agreements: Establishing equity splits and founder responsibilities.
• IP Protection: Securing trademarks, patents, and copyrights to protect your innovations.
• Basic Contracts: Drafting non-disclosure agreements (NDAs) and early-stage contracts with customers, vendors, and contractors.
Since your legal requirements are limited, it’s often more cost-effective to work with external legal advisors who specialize in startups. Hiring in-house legal counsel at this stage is generally unnecessary and too costly for most startups.
Stage 2: Early Growth – Expanding Legal Needs
As your startup gains traction and enters its early growth stage, your legal needs begin to expand. You might raise additional funding (e.g., seed or Series A), hire employees, and take on more customers.
Here are some signs that your legal complexity is increasing:
• Hiring More Employees: Managing employment law, stock option agreements, and compliance with labor laws.
• Raising Capital: Negotiating term sheets, handling investor due diligence, and structuring financing rounds.
• Increasing Contracts: Handling more complex contracts with clients, vendors, and partners.
• Regulatory Compliance: Ensuring your startup complies with industry-specific regulations.
At this stage, you’ll still rely on external counsel for more specialized or one-off legal matters, but the volume and complexity of legal work are growing. While a full-time GC may not yet be necessary, you may want to consider bringing in part-time or fractional general counsel for ongoing legal management.
Stage 3: Scaling – The Right Time to Hire General Counsel
When your startup reaches the scaling stage, you’ve likely raised significant funding, expanded your product offerings, and hired a growing team. This is when many startups find that the volume of legal work justifies hiring an in-house general counsel.
Key signs you’re ready for a GC:
• Multiple Funding Rounds: You’re preparing for or have raised Series B or beyond, which involves complex investor relations, legal compliance, and contract negotiations.
• Hiring Across Jurisdictions: You’re expanding into new states or countries, which requires managing employment laws and regulations in different regions.
• Regulatory Challenges: Your industry (e.g., fintech, healthcare, or SaaS) requires compliance with stringent regulations such as data privacy laws (GDPR, CCPA), or your startup is scaling into international markets with different legal requirements.
• IP Portfolio Growth: You have multiple patents, trademarks, or other intellectual property assets that need ongoing protection and management.
• Partnerships and M&A Activity: You’re engaging in strategic partnerships, joint ventures, or considering mergers and acquisitions (M&A), which require complex legal negotiations and structuring.
Hiring a general counsel at this stage allows you to proactively manage legal risks, ensure compliance, and handle day-to-day legal matters without relying on external law firms for every issue. A GC can also act as a strategic partner, advising on business decisions from a legal perspective, which is crucial as the stakes grow higher.
Stage 4: Maturity and Exit – Full-Time General Counsel Is Essential
By the time your startup reaches maturity—whether you’re preparing for an IPO or an acquisition—the complexity of your legal operations will be significant. A full-time general counsel becomes essential to ensure your business is fully compliant with corporate governance, securities laws, and other regulations.
At this stage, you’ll be managing:
• IPO Preparation: Navigating securities laws, working with regulators, and ensuring compliance with stock exchange requirements.
• Exit Strategy: Whether you’re preparing for an acquisition or public listing, a GC will be critical in negotiating terms, ensuring compliance, and managing due diligence.
• Corporate Governance: Maintaining a high standard of corporate governance, including board management, investor relations, and compliance with all legal obligations.
By this point, legal oversight is a full-time job, and your general counsel will work closely with the executive team to manage the legal aspects of your company’s strategy and growth.
The Benefits of Hiring General Counsel
Hiring general counsel isn’t just about managing legal risks—it’s also about bringing strategic value to your startup. Here are some of the key benefits of having in-house legal counsel:
1. Cost Efficiency: As your legal needs grow, the cost of relying on external firms can become unsustainable. A GC can handle routine legal work in-house, saving on external counsel fees.
2. Faster Decision-Making: Having a legal expert on your team means quicker access to legal advice, allowing you to move faster on business decisions.
3. Better Risk Management: A GC is proactive in identifying and mitigating legal risks before they become major issues. This is especially valuable as your startup scales and becomes exposed to more complex regulations and legal challenges.
4. Business and Legal Alignment: Your general counsel will understand the intricacies of your business, making them an essential advisor on both legal and strategic decisions. They can help ensure that your growth plans align with legal requirements, minimizing risks.
5. Internal Consistency: With one legal point of contact, your company can maintain consistency in legal matters, from contracts to compliance to intellectual property protection.
How to Find the Right General Counsel for Your Startup
When you’re ready to hire general counsel, finding the right fit is crucial. Look for a candidate who:
• Understands Your Industry: A GC with experience in your industry will be familiar with the specific legal challenges your startup faces.
• Has a Startup Mindset: Startups require legal counsel who can be flexible, wear multiple hats, and balance risk management with business agility.
• Has Leadership Skills: As your startup’s legal leader, your GC will manage both legal strategy and external relationships with law firms, regulators, and investors.
Conclusion: The Legal Roadmap for Startups
As your startup grows, so too do the legal complexities. In the early days, external counsel can handle your legal needs, but as you scale, hiring a general counsel becomes crucial for managing ongoing legal challenges, staying compliant, and reducing risk.
By hiring a GC at the right time, you’ll not only protect your startup from legal pitfalls but also empower your business to grow faster, with a legal expert by your side.
Call to Action:
If you’re looking for legal experts to guide you through your startup’s growth journey, explore our law firm directory to connect with experienced general counsel candidates or law firms that specialize in startup needs.
This blog post provides a clear guide for founders on when and why they should hire a general counsel, breaking down the benefits and key milestones where bringing legal expertise in-house becomes essential.
