5 Reasons a Small Business Owner Should Talk to a Lawyer
A small business owner needs a lawyer like . . . a fish needs a bicycle? I know that’s what a lot of business owners think. When told they should get legal advice, they react with disgust, horror, panic, fear, or some combination of those emotions. And for good reason. Going to a lawyer’s office can be intimidating. Getting a lawyer to pay attention and give practical advice can be daunting. And thinking about all the money it might cost is completely overwhelming. So lots of people try to get around this. They ask a friend or relative for advice. They try to do it themselves (maybe with some online help). Or — by far the most popular — they ignore the problem and hope it goes away.
I understand. In my career, I have hired and supervised dozens of attorneys on hundreds of matters. I was often frustrated with the level of service they provided. I was ALWAYS frustrated with the cost. But if you are starting up a business, or running a business with employee, contracts or other legal needs (which, let’s face it, is pretty much EVERY business), there are at least 5 good reasons you should bite the bullet and get professional legal help. Why? Because:
1. ONE SIZE DOES NOT FIT ALL.
There seem to be fashions in business, just like shoes. The current favorite of the small business world — the Christian Louboutin, let’s say — is the LLC (or “limited liability company”). Why is it that everyone thinks this is the perfect form of business organization? Did Oprah do a show on this? Or is it just something that’s easy to find in online legal sites? Because practically every new business owner I meet thinks that he or she needs to form an LLC. And for most, it’s probably not a good fit. There are a number of reasons for this, especially in California. Though the LLC provides some limited protection of personal assets, that protection is pretty much meaningless for a business owner who (like most) has used a personal guarantee to secure financing and has purchased insurance to protect against third party claims. The LLC may also have undesirable tax consequences and start-up costs compared to an S Corp or sole proprietorship (more details on the pros and cons in a future post). Kind of like a pair of Louboutins with 5-inch heels, it’s an expensive item that just doesn’t make sense for everyone. That’s why it is so important for business owners to talk to a lawyer about which corporate form does fit.
2. LEGAL PROBLEMS ARE NOT DO-IT-YOURSELF PROJECTS.
A client contacted me for advice on a partnership agreement for his recycling business. He was proud of the fact that he’d been able to draft it himself with the help of an online legal site. He just wanted to make sure he’d included all the necessary terms. And he’d actually done a pretty good job. Except as we talked it became clear he didn’t know he could be personally liable for the debts of the partnership, even if those debts were taken on by his partner without his knowledge. When he found that out he started to wonder whether a partnership was really the right organization for him!
Similarly, another client had incorporated his business in Nevada, on the advice of a friend. After doing so he wondered whether he’d still have to pay California taxes since his business was based in this state. That made him wonder whether there was any benefit for him to incorporate in Nevada at all. . . and he finally contacted me to find out about dissolving the Nevada corporation. By this time I guess the point is clear — it will save you lots and lots of time and trouble if you get it right by talking to a lawyer at the start. No matter how good the website is, an online legal service will not provide the kind of customized information you need to make good business decisions.
3. YOUR UNCLE SID IS NOT A LAWYER (and if he is, you may need a second opinion).
The other day I met a woman (we’ll call Karen) who is starting an online travel business. She had downloaded a bunch of pictures she was planning to use on her website and travel brochures. Problem was, Karen didn’t really remember who had taken the photos or where she’d gotten them from. Uncle Sid (we’ll call him) told her it was fine to use other people’s internet photos, as long as the download wasn’t “blocked.” So, she figured everything was fine. But . . . not so much. (I’ll talk more about this in a future post, but it is generally not okay to use random photos you find online without permission.) The point here is that Karen got some really bad advice from someone who thought they knew the law, but didn’t. You know the old saying, “A little knowledge is a dangerous thing?” Well it applies in spades to legal advice.
Every day I meet a business owner who thinks he needs to incorporate, file a patent application, get a copyright, or even file a lawsuit — just because a well-meaning friend or relative told him that was the right thing to do. Often, it isn’t. And even if it is, you need to weigh the costs against the potential benefits. And for that, you really need professional advice. Ideally, you will get that advice from an independent, un-biased, experienced professional. Because your Uncle Sid (even if he is a lawyer) may not clearly understand (or appreciate) your grown-up business plan. Or, he may not be experienced enough or up to speed on the latest legal developments affecting your business. But most of all, he may not be able to give you a realistic sense of the legal cost (in dollars, time, outcome) of whatever you plan to do. For that, you really need to talk to a lawyer, and find out what your options are. Ideally, you have that conversation before the Cease and Desist letter arrives in the mail!
4. LAWYERS HAVE CONNECTIONS!
This is my favorite reason why you should talk to a lawyer. Because even if you think lawyers are scum-sucking bottom feeders (as distinct from catfish, which are merely fish), you may be willing to acknowledge that they KNOW PEOPLE. They know other lawyers, of course, and maybe a few judges, but most important — they know accountants and they know other business owners. These are two categories of people that will be very helpful to you in your business. In particular, an accountant can give you valuable advice on whether (and how) to incorporate, how to set up your corporate books and payroll correctly, how to track your business success — a lot of things it’s very hard to do on your own. Also, accountants know people too — like maybe even bankers or other sources of financing. People you meet through lawyers and accountants, in turn, may end up being suppliers, partners or affiliates of your business or may simply have some resources to offer that you could use. In short, talking to a lawyer will help expand your professional network, and we all know that, right now, networking can be critically important to business success.
5. COST IS NEGOTIABLE (especially these days).
The heading kind of says it all. These are tough times for lawyers just like everyone else. Right now it is easier than ever to work out a flexible fee arrangement that meets your business needs. You might even consider asking your lawyer for a retainer agreement, where you pay a modest flat fee every month that will entitle you to a certain number of calls or visits or contract reviews, etc. Many lawyers are agreeable to this. Or, you might ask for flat fee quotes (vs. hourly rates) for specific types of work, like filing incorporation papers, writing up an employment policy, or reviewing a purchase agreement. This can save you a lot of money in the long run, provided the service is priced appropriately. The main point is, you have lots of bargaining power right now, and most lawyers are willing to be flexible, especially if it means establishing a long-term client relationship (which is what you really want!) So that’s the end of the last excuse. Don’t let cost stop you from getting the professional advice you need.
So — now that I’ve told you all the reasons why I think you should talk to a lawyer, you’re probably thinking, “Fine, but how does she expect me to find a lawyer I can trust???” And, I promise I will talk about that soon, in another post!