Christine Williford Metcalf Partner, Locke Lord LLP
Associate, Hunton Andrews Kurth
FALL 2018 ISSUE
SMALL BUSINESS MATTERS
Starting a business can be incredibly exciting, as well as difficult and stressful. One question often asked by new business owners is not merely if they need legal advice, but when they must have legal advice. New businesses do not (usually) have unlimited funding, and investors are often hesitant to p rovide additional funds to a new business if they are not confident about how their initial investments in such business are being spent. Accordingly, business owners are tasked with making the tough decisions of what expenses represent immediate needs, which expenses can be delayed, and what expenses can be avoided altogether. While minimizing expenses is important, there are many legal risks that can be substantially reduced in the long-term by engaging a competent and cost-effective legal advisor at the appropriate time. But the question remains - as a business owner, when do you need to hire a lawyer?*
Starting Your Business You do not have to hire a lawyer to form an entity for your business. Instead, consider hiring an accountant and discussing with them the potential forms of entity through which you can operate your business, as well as the related accounting and tax consequences associated with each such option.
Do require that all of your employees and independent contractors sign confidentiality and assignment of intelligent property agreements to protect the confidential information and intellectual property of your business. However, you do not have to hire a lawyer to draft such documents. Instead, research online to find forms of such documents or ask a fellow business owner to share the forms of such documents that he or she may use. If you are not already, do consider getting involved with a local chamber of commerce or similar organization as a way to meet other business owners from whose successes and mistakes you can learn.
Growing Your Business Do hire a lawyer if you will have any investors other than you, your business partner(s) and your close friends and family. There are both federal and state securities laws that could be triggered by raising capital for your business, which are broad and complex, and securities law is an area where a mistake could be very costly both to you and your business. Accordingly, while the incremental cost of hiring a lawyer to draft and review potential disclosure and other investment-related documents in connection with a capital raise may seem expensive at the time, the overall cost to you and your business could be substantially greater if you do not seek advice.
You do not have to hire a lawyer to draft or review all legal documents for your business, but do be sure that you read all such documents and pay attention to what you and the other party are agreeing to, as well as what you each are not agreeing to. If you are not sure of something, do ask a lawyer or other trusted advisor.
Do obtain and keep fully signed copies of all legal documents, and do track ongoing obligations under such agreements, including, but not limited to, rights to renew and terminate such agreements.
Do hire a lawyer to draft, review or negotiate any legal documents that could make (or break) your business, including situations where you are providing access to any material confidential information about your business to a third party.
Do hire a lawyer to advise you regarding whether applications for patents, trademarks or copyrights are material for the operation and success of your business.
Do hire a lawyer or another trusted advisor if someone threatens to sue you. A good advisor can sometimes help avoid litigation, which will save you substantial expense. Litigation is never cheap!
Do hire a lawyer if you are negotiating with someone to buy your business or looking to buy another business, but do not hire a lawyer who lacks direct experience with similar transactions.
Employment Issues Do be mindful of employment-related issues and the extensive exposure to liability that can be associated with neglecting such issues. To avoid such pitfalls, do craft and implement employment policies and practices that are compliant with federal, state, and local employment laws prior to hiring any employees and maintain such policies in an employee handbook. Do provide your employee handbook to all new employees of your business.
Do hire a lawyer to either prepare or, at a minimum, review such policies, especially as your business grows and you add additional employees.
Do be sure to properly classify each individual hired by your business as either an employee (who is either exempt or non-exempt from overtime requirements and certain benefits under federal law) or an independent contractor. Such classification should be based on the worker’s job duties and payment entitlements, among other factors. Do consider hiring a lawyer to assist you with making such determinations, or to review your basis for such determinations, if you have questions about what classification is appropriate for one or more individuals who provide services for your business.
Overall Advice? Do have at least one trusted advisor - whether it is an accountant, a lawyer, a banker, or another business owner. Ultimately, there will be all sorts of legal, financial, and other issues that a small business owner will encounter; having someone to ask for advice, even just for advice as to whether to hire a specialist advisor or not, will be incredibly important to the success of your business.
Do require that any advisor or service provider you hire is providing the service that you need and have requested, and do be sure to review their invoices. If an advisor or other service provider, whether legal, financial, or otherwise is charging you more than your business can afford, talk to them about alternative fee arrangements and whether they have any flexibility on their rates. If that is not possible or does not solve the financial strain on your business, ask for recommendations for an advisor or service provider that can provide you with the services your business needs at a cost you can afford. *Please note, the opinions expressed herein are those of the authors and are not intended to constitute legal advice to any reader hereof. Each business is unique and faces different legal and other issues. Each business should engage advisors, including, but not limited to, legal advisors, as and when determined appropriate by the owners and/or management of such business.