If companies do the hard work to keep their legal documents clean, they can avoid "liability." However, oftentimes the ambiguous menace of faceless liability is not enough to motivate entrepreneurs to create the legal documents necessary for good corporate hygiene.
Stories about fellow startups that suffered because of their sloppy legal documents provide great examples of what liability can look like in the flesh. I stumbled on this post, Handshakes and Smiles: Founder Feuds from Snapchat to Facebook, which contains useful, real-world examples of two successful companies, Urban Decay and Snapchat, who exposed themselves to liability by not paying attention to their early legal documents. When people talk about risk and liability, they’re talking about stories like these. It's easier for entrepreneurs to understand risk when shown the concrete stress, money, and uncertainty of legal battles played out in reality.
As the article points out, although it's relatively simple for a startup to create the proper legal documents that would prevent liability from the start, "Enthusiasm often leads them to ignore the important but easy-to-defer details." The best way to protect your company is to create the right foundational documents, whether you're Snapchat or a newly-launched startup.
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