Introduction
Startups, especially in the Information Technology (“IT”) industry, often move extremely fast with product planning, building new features, introducing them to customers, making changes based on customer feedback, and making focused efforts to grow the business. However, legal needs are often ignored in the process. They’re regarded as continuous, complex, and usually invisible until something goes wrong.
This article highlights the need for a Fractional General Counsel (“Fractional GC”) to provide IT companies with a systematic approach to ongoing support for the growth and operations of the industry. This article also focuses on common challenges in IT companies, describing how a Fractional GC operates in a software-driven sector, and illustrating how this model is a cost-effective way for all firms to improve efficiency and grow soundly without requiring full-time counsel.
Challenges Faced by IT Companies
The IT industry operates in a risky legal environment, where even simple business decisions can have serious repercussions if not managed properly. Software firms constantly face complex business structures, fast-paced product development cycles, and multiple parties, many of which involve unclear legal procedures. Such agreements are sometimes entered into under tight timelines and without thorough reviews, resulting in unclear obligations, onerous liability provisions, and weak enforcement rights. Intellectual Property (“IP”) is another significant challenge; a simple mismanagement of IP rights can lead to ownership disputes, loss of patented or trade-secret technology, or red flags for investors.[i]
The challenges of fulfilling these compliance requirements further put IT companies at risk, especially when they handle customer data, operate cross-border, or provide solutions to enterprises and government institutions. Data protection laws, cyber laws, intermediary liability laws, tax laws, and other industry-specific laws impose a range of stringent obligations on software companies. Although ignorance or unintentional non-compliance can invite serious legal attention, including punishment, restrictions, and penalties that may damage reputation, many IT companies underestimate these commitments or believe they will address these matters later, only to end up facing complex compliance and policy issues.
Beyond these compliance issues, IT companies face additional legal risks related to employment law, third-party dependencies, and customer expectations. Misclassification of employees, improperly drafted employment contracts, and poor employment policies can all lead to lawsuits. Furthermore, depending on third-party services, such as cloud services, or using components of open-source technology without reviewing licensing agreements can pose an infringement risk. Generally, when IT companies address legal issues reactively rather than strategically, they tend to arise quickly, wasting management time and potentially undermining the company’s scalability and investment potential.[ii]
In the software and IT sector, legal oversight must extend beyond general corporate compliance to address issues inherent to technology-driven products and services. Key areas include the structuring of software licensing models such as SaaS, subscription-based access, and enterprise licences, along with clear renewal and termination mechanisms. Inappropriate licensing structures can lead to revenue loss, customer disputes, and restrictive long-term obligations. Equally critical is the ownership of intellectual property, as software products often involve contributions from founders, employees, consultants, and third parties. Without a clear IP assignment and protection, companies face serious risks to their core technology, valuation, and investor confidence.
Customer-facing agreements, such as Terms of Use, SaaS agreements, MSAs, and SLAs, constitute the legal backbone of software businesses and must accurately reflect product functionality and service commitments. In parallel, IT companies must manage data protection, cybersecurity, and cross-border data transfer obligations, particularly in cloud-based and data-intensive operations. The increasing use of emerging technologies, such as artificial intelligence, further intensifies legal complexity, raising concerns regarding data use, liability, and regulatory scrutiny. Employment structuring, enterprise sales, government contracts, and the maintenance of investor-ready documentation also require ongoing legal oversight, making specialised and continuous legal support essential for software companies.
Why is Fractional GC Especially Helpful for IT Startups?
A Fractional GC is a lawyer who provides planned and operational legal support to a company on a part-time, flexible, or on retainership basis. Unlike a full-time General Counsel employed internally within the company, a Fractional GC primarily serves startups and growing businesses, offering the same expertise as in-house counsel at more efficient rates and with greater flexibility in time dedicated to the company, aligned with their needs.
For early-stage and growing startups, especially in the software and technology verticals, legal needs tend to be extensive and multi-dimensional. Initially, the business may need assistance with drafting contracts and policy reviews; the next day, it may need assistance with fundraising, compliance, licensing, or risk mitigation. A Fractional GC provides senior-level legal support and helps businesses scale while remaining compliant with the legal framework and keeping financial burn manageable.[iii]
A Fractional GC generally provide a broad service offering: from commercial contracts and employment documentation to IP protection, regulatory compliance, data privacy frameworks, investor due diligence readiness, and the design of the legal process. Since they will be integrated into the company’s teams and systems, continuity of service and proactive, dependable legal oversight is ensured.
The nature of software and IT startups makes them especially well-suited to Fractional GC, given how these businesses operate. Software startups are unlike most companies in their scale. They start growing even before their organisational systems fully develop. The pace of product development, customer gain, and capital raising leaves no time for delayed legal analysis. A Fractional GC provides continuous in-house counsel attuned to a startup’s pace, addressing all legal matters in real time as decisions are made.
Software startups face increased risks related to intellectual property ownership, data use, technology licensing, and customer obligations. Early errors in these circumstances, such as ambiguity in IP ownership by founders or developers, misuse of open-source technology, or improper SaaS licensing, can have far-reaching repercussions. A Fractional GC can assist in this matter by pointing out early dangers and assist in taking measures to make sure that the fundamental technology and business model of a software startup are taken care of from a legal perspective. Early assistance can be invaluable when a software startup is raising capital.
A significant portion of legal risk in IT companies arises not from the absence of contracts, but from poorly drafted ones that fail to reflect the actual functionality of the software or the company’s service capabilities. A Fractional General Counsel ensures that contracts clearly define licence rights, usage restrictions, and service scope, while maintaining proportionate risk allocation that aligns with commercial realities. Given the constantly evolving nature of software products, contracts must also allow flexibility for updates, feature changes, and scalability, supported by practical termination and suspension mechanisms. Clear allocation of data ownership and responsibility, management of third-party and open-source dependencies, and forward-looking drafting that anticipates regulatory changes and emerging technologies such as AI are essential to reducing long-term risk and preserving the company’s business model.
Furthermore, startups typically have limited monetary resources but still need access to a senior-level legal team. A Fractional GC offers a perfect blend of experienced legal counsel and an economical setup. A software startup can significantly benefit from a Fractional General Counsel.
A Fractional GC plays a strategic role in supporting growth and long-term planning. As IT companies expand, enter new markets, onboard different clients, or raise capital, the legal risk becomes increasingly complex and voluminous. A Fractional GC provides continuity and informed guidance through these transitions, ensuring that legal decisions support sustainable growth rather than hindering it. This model offers senior legal leadership to IT companies without the cost or rigidity of a full-time appointment, making it a compelling solution in a legally demanding industry.[iv]
Solutions to the problems faced by IT startups
The legal and compliance challenges faced by an IT company are unlikely to be resolved with intermittent legal advice or the occasional last-minute review of contracts. What is required is symmetric, regulated legal oversight that grows consistently with business enterprise. This is where the Fractional GC model can offer a pragmatic and practical solution. By working closely with the business over time, a Fractional GC can develop a solid understanding of the business model, technology, risk appetite, and commercial objectives. This helps ensure that legal advice is timely, relevant, and aligned to operational realities rather than theoretical concerns.[v]
One key solution is to introduce discipline and uniformity into legal processes. A Fractional GC standardises contracts, sets clear approval workflows, and creates internal policies that guide teams in day-to-day decision-making. This reduces reliance on ad hoc legal fixes and minimises exposure to inconsistent practices. For IT companies, this means faster deal closure, stronger protection of intellectual property, clearer licensing arrangements, and a reduced risk of disputes arising from poorly drafted agreements or undefined obligations.[vi]
From a compliance perspective, a Fractional GC makes sure that legal obligations are identified upfront and systematically addressed. Instead of reacting to regulatory notices or audit queries, companies are guided by compliance frameworks that are practical and proportionate to their needs from the outset. This includes implementing data protection measures, maintaining statutory and regulatory filings, reviewing licenses and approvals, and ensuring compliance with evolving legal requirements. This proactive oversight significantly reduces the risk of penalties, enforcement actions, or reputational harm.[vii]
Conclusion
For modern-day software and tech startups, legal assistance is no longer a back-office function but a crucial pillar that affects product development, sales, investor relations, and long-term growth. As the ecosystem becomes more complex, data-driven, and regulated, the traditional approach of hiring external lawyers on an ad hoc basis cannot keep up with the pace of software companies. However, most early-stage startups are not in a position to afford the cost and commitment of a full-time general counsel.
The Fractional GC model is therefore more beneficial in this case. It provides the client with the qualities of in-house counsel without the high cost of maintaining an in-house counsel. It provides the features of an in-house setup without having to take care of the liabilities that come along with it. A Fractional GC is, therefore, not only a problem solver; it’s also a problem preventer.
The worth of a proactive, on-hand legal partner like a Fractional GC cannot be denied as software startups grow. A fractional GC gives founders the power to build with confidence, be able to make quick decisions, and have the security that their legal and strategic foundations are in place for the next stage of growth.
References:
[i] StartSmart Counsel. (n.d.). Why startups need ongoing legal help and how a fractional General Counsel delivers it. Smart Counsel.
[ii] Anderson P.C. (n.d.). Why startups should consider fractional General Counsel services. AnderPC.
[iii] Grant Law. (n.d.). Why startups should consider fractional GC/CLO services.
[iv] Taylor Root. (n.d.). The strategic role of a fractional General Counsel. Taylor Root
[v] Carbon Law Group. (n.d.). The 5 major benefits of a fractional General Counsel for growing businesses. Carbon Law Group.
[vi] Lopes Law LLC. (n.d.). How a fractional GC can support your company’s growth. Lopes Law LLC.
[vii] Ochroch Law Group. (n.d.). Fractional General Counsel is particularly valuable for startups. Ochroch Law Group.
Gaurav Gupta is the Founder and Managing Partner at Bridge Counsels & Ritisha Mathur is a 5th year, BA LLB (Hons.) Student at Amity Law School, Amity University, Noida.
