Why Should Small Businesses Seek Legal Counsel?
Let’s be real – you never NEED to hire a lawyer. It is perfectly okay to represent yourself clear to the United States Supreme Court. There is a multitude of free online legal advice website, and more every day. You can get contract and document forms from certain sites for little to no cost, seemingly tailored just for you. But, do you have time to learn the law and the court procedures to defend yourself? Can you trust that free online “advice” site to give you accurate, state-specific counseling? Is that document really tailored for you, or just an auto-fill document containing general language? Is that document even the correct one you need?
I get it, lawyers are expensive compared to all these available resources. Anything is costly compared to free. However, for one, not all lawyers are expensive, and secondly, you will be surprised how often legal questions arise when starting and growing a small business. Let’s take a look at a few areas where lawyers can take the stress of legality off entrepreneurs!
You have an idea for a business, you spend hours researching the viability of making the product or providing the service, you have a business plan, you are excited to get going and begin being your own boss! You set up a shop and start selling your product or service — Did you know this makes you a sole proprietorship? While it is easy, being a sole proprietorship has some significant downsides, and there are other options. Let’s compare different ways a business can be formed:
Sole proprietorship (or partnership):
· Benefits – easy to form, no registration requirement, you can operate as soon as you have the proper licenses and has pass-through taxation.
· Downsides – no limitation on liability! All debts incurred by the business may be levied against the owner’s personal property.
LLC (Limited Liability Company):
· Benefits – legally similar to a partnership, but limits liability to the owners through a filing with the Secretary of State, also has pass-through taxation and is very well suited to small businesses!
· Downsides – more complicated than a sole proprietorship, beyond the Secretary of State filing, an LLC also requires an operating agreement and is subject to state rules and regulations (typically, LLC Acts), legal advice is recommended if you have more than one owner.
· Benefits – much better suited for larger businesses or those seeking to raise money through equity sale, ownership is determined by shares, and the Secretary of State filing limits liability.
· Downsides – the most complicated form of business and requires many more organizational documents, including bylaws and shareholder agreements, I would suggest you consult with an attorney before beginning a corporation.
Contracts, Contracts, and More Contracts!
You formed your business, so you are off to a good start! Now you can act on behalf of your new business and enter into legally binding contracts. Suddenly, there are contracts everywhere! Want to hire employees? You need an employee agreement. Want to sell your services? You need service agreements. Want to lease property or equipment? Guess what, you need lease agreements!
All these different types of contracts can quickly get confusing. Each needs to have specific language pertaining to the particular situation if you want to protect yourself adequately. It is also very easy to draft contracts to favor one side or the other. Therefore, it is necessary to carefully read each contract and understand what it is requiring of you and your business.
Appropriately done, contracts serve a purpose perhaps even more significant than protecting the parties. A well-executed contract informs and instructs the parties on what each party expects of the other. It defines the relationship so there is no guesswork after the initial meeting. The last thing a new business wants is to have disappointed customers due to miscommunication as to what product or service the business will provided.
Protect Your Brand
Protecting your physical property primarily comes in the form of contracts, but protecting your intellectual property is another matter entirely. You have worked hard to create your brand — it should be protected!
Trademarking a name to protect the brand a small business has worked hard to build can be a long and complicated process. Trademarking is also not for everyone. Even if a business does not want to trademark their name, they should conduct a trademark search at the beginning of forming a business. It would be very unfortunate to invest in a name, logo, and begin advertising only to receive a cease and desist letter from someone who has already trademarked the name!
Growth Comes With New Problems
Legal issues do not go away when you are running a business. In fact, the larger the business, the more legal issues will arise. The more contracts a business enters into, including employment, supply, rental, etc., the more chances that someone will breach the agreement or the terms of the contract will not be met. As unfortunate as it is, a business will always have legal concerns. These concerns will only grow more significant as the business grows. A good relationship with legal counsel from the beginning can head off many of these issues before they become major concerns.
Seeking legal counsel, in the beginning, may be an expense you have a hard time justifying, especially when there are other options available. However, the alternatives do not grow with your business. They do not have a personal interest in your business, and you cannot call them to ask questions whenever they arise. Yes, it is not strictly necessary to retain an attorney. But doing so allows small business owners to focus on what is important — their business — while their legal counsel makes sure they are doing it correctly. Think of retaining counsel in the beginning as insurance, spend a bit now to save yourself the major headache in the future.
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