Businesses and people often treat lawyers like plumbers or firemen: you only call when there is a problem. This is an understandable reality: Whether you are starting a business or operating a business on a day-to-day basis, many other tasks require attention (and money), like marketing, sales, staffing, and other administrative matters. The last thing a business owner often wants to think about is a lawyer.
Smart business planning, however, should include calling and using a lawyer to prevent problems. A lawyer can help a business protect itself from a variety of problems (like partnership disputes and lawsuits). Businesses often do not realize that spending a little time, effort, and money on an attorney to identify and resolve potential problems could save that business numerous headaches (and a lot of money) down the road.
Here are 7 ways a lawyer can help a business protect itself from trouble.
7 Ways a Lawyer Can Help Your Business
Individuals often incorporate and start their businesses themselves without the assistance of an attorney. While that may be fine for a simple business (such as a single-owner LLC), it may not be ideal for a business that has multiple owners or transacts business across state lines. In these situations, a lawyer can help a business owner choose the right corporate structure (LLC, S-Corp, C-Corp), choose where to incorporate (in your home state or in Delaware), understand whether by-laws or other documents are needed, and – for multi-owner companies – understand the need for an operating or partnership agreement.
Generally, the more complicated the business, the more likely an attorney should be consulted for appropriate advice. Without an attorney, if the wrong decisions are made, the business could face issues concerning taxes, compliance, and disputes between owners.
2) Corporate Governance
Even when a business uses a lawyer for assistance with incorporation, the business’s relationship with that lawyer should not end with the official launch of the business. Moving forward, a business will likely need to comply with several requirements, such as maintaining its corporate status, holding periodic shareholder/director/partner meetings, recording minutes, electing officers, and complying with other state requirements. These requirements are often imposed by agreements the company entered into (such as an operating agreement) or by applicable statutes.
Having an attorney involved with the business on an ongoing basis will help the business stay up to date with these requirements and comply with them. If a business fails to do so, it could run afoul of state laws, jeopardize its corporate status, create disputes between owners or partners, and potentially expose its owners to personal liability.
3) Intellectual Property
Businesses often have several (or, in some cases, many) intangible assets that deserve legal protection. These assets include a company’s brand name and distinctive goods and services, such as computer software, inventions, machines, manufactured products, and even unique processes. An attorney can help a business with trademark, copyright, and patent registrations, and with developing a strategy for enforcing those protective marks. An attorney’s assistance in this area (in addition to registering for these protective marks) can provide a business with an advantage over its competitors.
4) Preparation of Customer Agreements
Business owners often try to draft their own agreements to use with customers (like terms and conditions, or agreements appended to purchase orders), so they can avoid the cost of hiring a lawyer. However, these agreements often omit critical language that would protect a business and/or assist a business with enforcing it if a dispute arises with a customer.
For example, sometimes an agreement a business owner drafted may create obligations for the business that the owner never intended to create. Further, business owners often forget to include arbitration provisions in agreements or a provision that states that, if a dispute arises, the business can recover its attorney’s fees if it chooses to enforce the agreement.
Hiring an attorney will ensure that a business has the right agreement prepared for each situation, and that these agreements contain the language necessary to protect the business. The cost of getting this done is minimal when compared to the more extensive costs incurred when a dispute arises involving a poorly-drafted contract.
5) Contract Review
Some businesses do not review contracts before they sign them, or they scan their contents without understanding the obligations to which they are agreeing. This often occurs with vendor agreements or lease agreements. Other times, a business might believe that, if it is dissatisfied with a particular vendor or contractual arrangement, it can simply terminate the relationship without repercussions.
Depending on the arrangement, proceeding in either situation without the advice of an attorney could expose a business to liability and – if a dispute arises – thousands of dollars in attorney’s fees.
Before a business either enters into a contract or takes some action regarding a contract (particularly one to which it is a party), it should always have an attorney review the contract and provide advice regarding the business’s rights and obligations.
For example, before entering into a contract, a lawyer could review it and advise the business about the terms to which it is agreeing and possibly even negotiate better terms. This critical step will ensure the business is adequately protected going forward.
Likewise, making a decision on a contract without the advice of an attorney could produce unfortunate and unintended consequences. I once represented a business that terminated a contract with a vendor because it claimed to be dissatisfied with the service it was receiving. The contract, however, had a term of several years and was worth over $1 million in services. When this business terminated the contract, there were approximately two-and-a-half years remaining, or about $500,000 in services. The vendor filed a lawsuit, and my client spent a lot of money to defend itself in court.
If this company had asked an attorney to review the contract before terminating it, an attorney would likely have advised against that decision – and saved this business a lot of money.
When you are taking any action concerning a contract, you should always have an attorney a phone call away who can help you understand your rights and obligations so you can make an informed decision.
6) Employment Issues
Businesses that employ people usually encounter a variety of issues for which they require legal advice. The processes of hiring, terminating, and disciplining employees require a lawyer’s expertise (or that of a competent human resources professional) so that these processes are clearly defined and properly implemented, and so the business is complying with federal and state law. A lawyer can also help a business understand the proper way to classify individuals as employees or independent contractors. Failing to create and implement the right process could violate applicable laws, undermine an employee’s human dignity, and expose the business to a lawsuit.
In addition, some employees are highly valuable to a business, such as high level executives, sales personnel, and employees with certain expertise at technology companies. When businesses consider such employees as part of their valuable assets, they should take the appropriate steps to protect these assets. Such steps include requiring these employees to sign non-compete agreements and non-disclosure and confidentiality agreements. Therefore, if these employees leave the company, they cannot immediately go to work for a competitor or take any valuable information (such as trade secrets) with them.
7) Owner/Partner Exits
The departure of an owner or founder of a company can present a business with difficult ramifications. For example, does the operating agreement between three partners restrict withdrawal for any period of time? Should that provision be amended? When a shareholder decides to leave a company, how does the company proceed with buying that shareholder’s interest in the business? How is that interest calculated?
These and other issues should be considered and reviewed with an attorney so that, if an exit is on the horizon, the business can proceed smoothly without an undue financial burden or unnecessary legal entanglements.
How Much Does It Cost a Business to Involve a Lawyer to Deal With These Issues?
There is no question lawyers are not cheap. However, the cost of having a lawyer involved with a business on an ongoing basis is surprisingly inexpensive. For example, my firm offers an arrangement called “Business Advisor Services,” where, for a fixed monthly fee, we provide a set menu of services that cover the issues above as they arise. The lowest “tier” of services we offer as part of this arrangement costs about the same as that mobile device you have in your hand.
Investing in a lawyer’s expertise – much like an inspection of a property or preventive dental or medical care – can help a business identify and prevent many problems. It is a critical piece of smart business planning.