A theme repeated now several times during my mentoring sessions, is the misunderstanding of what legal advice is or should be. The first time this happened, was about a year ago, when a promising startup asked for my advice on how to offer share options to new employees.
Now any startup with some traction has gone through this and it is a very simple thing to do. Split your registered shares from perhaps 2 to a number like 2,000. Then create a simple contract for new employees that states if they achieve a specific goal, they will be offered 100 shares in the company at £0 or £1,000 or in exchange for salary.
A corporate lawyer understands this extremely well and is well versed in organising this for you.
But here’s the problem, and for coding geeks, you will understand the problem as GIGO (Garbage In, Garbage Out). If you go to your lawyer and state the problem:
“My company is registered with 2 shareholders that have 1 share each. Can I dilute my shareholding to allow me to offer share options to a new employee without changing my other principle shareholder. Your solicitor will struggle to answer your question and he won’t be able to evaluate your intentions and bring you round to an obvious solution.
Here’s why. You’re the creative, not your solicitor. Legal advice means if you ask a question they will advise you if what you want to do is legal or not. If you ask a simple question like: “Is this action legal?” they can answer easily with a yes or no. However if you ask an open question that requires them to work out a scenario or even worse, try to understand what you are really asking because your stated question is garbage, they cannot give you advice. This is because:
a) That involves creative thinking which is the last attribute a lawyer requires.
b) If they did want to give you actual advice and you followed it and it was wrong, you could sue them. You would win and their insurance company would pay out, raising their legal indemnity insurance costs dramatically.
To find a lawyer that can and will give you open advice will cost you a fortune. This is because not only does it require the multi-disciplined traits of legal unambiguous knowledge mixed with the opposing skill of creative thinking. But in addition the indemnity insurance to protect the solicitor from litigation arising from incorrect advice is prohibitive. Therefore 99% of lawyers steer away from giving actual advice.
What does this mean for you, the creative startup. You need to use a solicitor to advise whether what you want to do is legal. But you have to work out yourself what it is you want to do. Don’t expect to hand over a problem to a solicitor to fix it.
You have to fix it with “legal advice” from the solicitor. If you need to get advice, find an expert in that field and back it up with legal advice to verify whether the industry advice is legal.