It feels like he's got the minimum number of steps required to invoice a Fortune 500 company, to get a 7-figure insurance policy, and to deliver buggy code to that company without worrying about losing his house in a subsequent lawsuit.
Is there any advantage to waiting to get to that step until after speaking to an attorney, or should people just go ahead and at least get minimally covered?
Might it depend on whether equity distribution is a major concern (you want your company to survive the first dispute among its principals) versus actually transacting business?
These are excellent questions, and they come up all the time with founders.
Here is the basic trade-off:
On the one hand, it is a drain to have to pay lawyers or to have to comply with pure legal formalities when you need to focus your energies and resources on building a business.
On the other, if you skate along, and then something goes wrong which you have not covered legally, you get into a potentially tricky situation that can easily become more expensive to deal with than would otherwise have been the case had you invested some money and effort into covering the formalities in the first place.
My rules of thumb for founders on this are:
1. If you are a sole founder, you normally can take the "minimum steps" to get a bare-bones entity in place and defer more complex items until later. In that situation, you don't need to worry about what I have called "strings on stock" (i.e., restricted stock) or about IP formalities because these areas tend only to lead to problems when you have multiple founders and the risk exists that one or more of them may act opportunistically in the absence of clearly defined legal rights.
2. If you are a team, and you have a high level of trust among each other, you can also sometimes go with a bare-bones setup while you remain in, say, an early development phase (or otherwise are not actually transacting real business) and nothing of too high value is yet involved in your venture. In such cases, as you build varying degrees of value into the business, you do take some legal risk that someone will act opportunistically but this is normally an acceptable level of risk, both because it is remote and because the fallout from a worst case is not likely to be major. Hence, you can often wait before taking the more formal steps. Of course, all of this changes once you have built something that already has high value or excellent prospects of acquiring value. At that point, in my view, it is imprudent to rely on too informal of a setup.
While you can wait in such cases, it still helps, in my view, to speak to an attorney preliminarily up front just to get a strategic perspective on your options. Having done that, founders can usually make good judgments about whether or not to take other immediate legal steps or to defer them. The point is that they can then do so in an informed way (assuming the attorney is knowledgeable, which is not always the case unfortunately).
Concerning legal formalities associated with equity distribution, I have had lots of founders over the years come in having done a half-baked job on this when set something up themselves (a "quickie LLC" or some such thing) and it normally is no significant problem either completing or correcting this sort of thing as long as the founders remain in harmony. So, founders can take their own cut at this sort of thing and often come out OK but this often is as much dumb luck as anything else. Again, if any sort of value is involved, I think that founders should try to do things right at the stage when they do their key stock grants (or start doing real business).
Is there any advantage to waiting to get to that step until after speaking to an attorney, or should people just go ahead and at least get minimally covered?
Might it depend on whether equity distribution is a major concern (you want your company to survive the first dispute among its principals) versus actually transacting business?