08/ 13/ 2004
by Jeffrey Moses
Many small-business owners are reluctant to establish ongoing relations with an attorney because of the costs involved. It’s true that attorney fees can be steep, but there are times working with an attorney is necessary, such as creating important contracts or being involved in legal proceedings that could result in significant financial loss.
But the day-to-day legal needs of a small company are often uncertain -- and vague. Understanding the most common legal stumbling blocks small businesses face can keep you from overlooking issues that could land you in court.
- When establishing a business, certain crucial legal aspects must be addressed. These include, among others: type of ownership (partnership, LLC, corporation, etc.); contracts between owners; contracts with major suppliers; issuance of stock, etc. An attorney can help with these contracts, but you can save money by drawing up a general agreement between partners before contacting an attorney.
- Various employee relations can have explosive legal consequences. These include, among others: hiring liabilities (anti-discrimination policies should be implemented); wrongful termination (new employees should be made aware in a written legal document that they can be terminated at any time without liability to your company, in compliance with the laws of your state and any labor agreements that govern your employee relations); sexual harassment (an attorney can help you establish in-house procedures so that your company will minimize liability); and employee fraud (procedures can be established to help protect your company from liability).
- Employee stock-option plans and other employee benefits should be thought out carefully and planned with the help of your accountant. When drafting the final agreement, use an attorney.
- When intellectual property rights are in question, an attorney experienced in the field should be consulted. Often, a one- or two-hour meeting will be enough to address the specific questions of the matter involved.
- Complicated tax issues often require consultation with an experienced accountant or tax attorney.
- When a suit is brought against you for any reason, call an attorney immediately. Do not respond in any way without your attorney’s advice. Often, the first response to a suit sets the tone for the entire proceeding.
- When you receive funding from non-bank sources (friends, venture capitalists, etc.), you should understand all legal ramifications -- and an attorney should review the contract.
It’s usually a mistake to become involved in litigation before you attempt to resolve a dispute through mediation or arbitration. All contracts that may put you at risk for financial obligation should include terms that bind all parties to mediation or arbitration. The only exception is when all responsibility is on the other party. In such cases, mediation or arbitration may limit the amount you can collect if something goes awry. Again, it is a good idea to have an attorney review contracts that could put you at risk for significant financial obligations.
Small companies can maximize their time spent with an attorney (and thereby minimize expenses) by working with an attorney willing to give an hour’s worth of advice. Experienced lawyers have seen it all and can often guide you in the right direction quickly and economically. When you know you won’t have to spend an arm and a leg, you’ll be much more likely to set up a meeting that could save you thousands of dollars in legal hassles down the road.
