How Early to Get Your Lawyer Involved

I sat in a conference session yesterday and heard the presenter say that you should negotiate all the “deal points” of a strategic alliance before getting your lawyer involved. Lawyers can be expensive and also might introduce complications and delays into a business arrangement, so I understand the temptation to feel that way. Nevertheless, I strongly recommend the opposite course — discuss your business strategy with your lawyer early in the strategic alliance process.

A business-minded lawyer will be sensitive to cost, complexity and timing issues. But he or she can also guide you on key structural issues arising out of a strategic alliance. In the simplest case, you might negotiate the “deal points” of a distribution arrangement by establishing the price and market area. Your lawyer might then be given those terms, discuss your overall objectives with you, and then recommend an altogether different structure that will serve you better (for example, perhaps you should ask for a long-term license agreement instead of a customary distribution agreement). If you knew that early, you might easily get your business partner to agree; however, after the deal points of an alternative structure are set, it might be tougher to change course.

Similarly, your list of “deal points” and the lawyer’s list might not be the same. There are often issues that a lawyer will identify for you that you might have omitted from the upfront deal point negotiation. Sometimes these issues are more easily solved during the initial negotiation instead of after all the points you thought of have been settled. A trite, but perhaps illustrative, example is that your lawyer might encourage you to negotiate the payment terms at the same time as the price; if you only negotiate the price upfront, and then learn that your partner intends to pay only 60 days after the end of each quarter, you might have wished you asked for a higher price (due to your higher working capital requirements resulting from the payment delay) or even advanced royalties or prepayments.

In short, I’ve found almost universally that early intervention by an attorney can both (1) save money and (2) yield better outcomes by helping clients design the right structure first and resolve the right issues early. Conversely, where I’ve been brought in late, clients often grew to regret that fact because we were severely hamstrung in our ability to structure and negotiate the deal. That led to sub-optimal results for the client.

In conclusion, I recommend talking with your lawyer as early as possible in the process. He or she might give you insights that are invaluable, but only practical if you get them early.