When Should You Hire a Business Lawyer?

A recent report released by the Pew Research Center revealed that small businesses rule the American economy, especially since there are 33 million active small businesses in the country. 

Micro, Small and Medium Enterprises (MSMEs) constitute 99.9 percent of all businesses in existence and employ approximately half of all the workers in the private industry. According to business lawyer Samuel B. Burke, small businesses were historically either sole proprietorships or partnerships. Such businesses are able to generate more than $16.2 trillion in revenue. Still, the sector is in fierce competition based on the high number of small business closures, often attributed to inadequate funding.

Most business owners do not think of hiring the services of a lawyer until something wrong happens. A lawyer specializing in business law can handle all business-related legal issues.

The more useful question is not whether to hire a business lawyer but when to do so. Let’s look at some of the scenarios wherein a business lawyer will be able to provide valuable assistance.

When You Form the Business

The formation structure you select controls three key elements of your business, which include personal asset protection, tax obligations, and methods for resolving ownership conflicts between partners. A business must choose between four different entities, which include sole proprietorship, LLC, S-corporation, and C-corporation. Your decision is a key aspect that influences important business operations. 

The business attorney will analyze how each structure affects your needs and create the operating agreement and bylaws that establish your business operations. The business lawyer will define the founders’ equity distribution, their decision-making power, and exit strategy at business formation. 

Most business litigation arises from poorly written founder agreements and from the absence of such agreements. Basic startup legal services for business formation typically run $2,000 to $5,000, which is only a small part of the expenses required to resolve a founding dispute.

The Real Cost of Preventive Legal Work

The perception that legal help is expensive is accurate but incomplete. The comparison is the element that most people usually forget to include. A contract review costs $500 to $1,500. According to the business law firm website https://www.blakeandayaz.com/, business contracts should be put in writing since oral agreements are difficult to prove during disputes. A contract dispute that goes to litigation incurs costs of $20,000 or more. 

An employment law consultation before you hire your first employees costs a few hundred dollars. The IRS or DOL penalties for misclassifying employees as independent contractors can reach tens of thousands, which include back taxes, benefits liability, and potential civil claims. 

The costs of a trademark search and filing process start at several thousand dollars. The costs of losing brand value and market share to an infringer during litigation exceed all other expenses. 

The U.S. Small Business Administration estimates that legal problems are among the top drivers of small business failure. The majority of issues have displayed early warning signs, but the appropriate legal intervention was not carried out. 

Most small business owners fail to identify legal intervention opportunities. The need for preventive legal work becomes evident when the organization experiences its first major crisis. This particular process brings great benefits to the organization.

Situations That Consistently Require Legal Guidance

Routine operations, basic administrative tasks, and standard vendor purchases normally do not necessitate legal assistance. Unlike the previously listed tasks, the following situations require legal guidance:

• Signing any contract above a material dollar threshold. The internet provides template contracts that serve the needs of the party who created them. A lawyer reviewing your contract before you sign it will identify the parts of the agreement that transfer risk to you, restrict your ability to resolve disputes, and include unwanted automatic renewal clauses.
• Hiring employees for the first time. The IRS and DOL maintain distinct rules that differentiate employees from independent contractors through their classification standards. Your organization may face increasing liability problems after your initial hiring mistake.
• Entering a commercial lease. Commercial leases present several challenges when drafting their terms. Often times, when dealing with commercial leases, the parties argue more on the rental escalation, tenant improvement allowance, personal guarantee and assignment right. For negotiation purposes, it is advisable to hire an attorney to represent you when looking at the lease agreement before entering into the contract.
• Raising capital from outside investors. Every single offering of stock to friends, family friends, angel investors, or venture capitalists must follow all the securities laws. Lack of documentation contributes to ownership disputes and conflicts in relation to SEC regulations.
• A business acquisition or sale. Legal professionals must assess due diligence and representations. A lawyer must review the warranties, indemnification provisions, and payout structures. Merger and acquisition transaction errors rank among the most costly mistakes that businesses encounter in legal matters.

Employment Law: The Area Most Businesses Underestimate

Employment law is an area where many risks exist for small and medium enterprises, as these businesses often lack expertise in this field. There are some lapses that may happen without the knowledge of the employer. Issues of wage regulation, abuse, and discrimination often lead to the termination of an employee. Another issue that often occurs is the lack of communication to the staff.

In the course of every year, the Equal Employment Opportunity Commission deals with several thousands of employment discrimination charges. The fact that many of these come from organizations that did not have any employment policies in place, no documented procedures on performance management, and absolutely no discussion on how managers are to conduct an interview by asking only legal questions stands out. The Services of the employee handbook drafting and reviewing human resource practices of an attorney are several times less than the cost of litigation after it is filed.

Intellectual Property: Protecting What You Build

Many companies hold a vast bank of intellectual properties, but most aren’t even aware of it. If left unprotected, company brand names, product names, logos, etc., waste potential intellectual property value.

• Trademark registration helps you protect the brand against infringement and makes your case a priority in case of a dispute. As for unregistered trademarks, they enjoy less protection.
•  Original creative works automatically obtain copyright protection, but it is still important to register the same specifically when suing for infringement and seeking statutory compensation. In such situations, registration can be very beneficial for businesses that produce creative works in large numbers.
• A company must actively defend its business interests and trade secrets by adopting certain measures. Undertaking preventive steps will prevent key business knowledge from falling out of commercial networks, which would cause it to lose its value as commercial property.

IP disputes are expensive and unpredictable. IP protection before a dispute arises is structured, budget-able, and permanent.

The Question Is Timing, Not Whether

The question for most business owners is not whether they will eventually need legal guidance. Most will. The question is whether they engage in it before the problems that legal guidance prevents or after.

The businesses that spend the least on legal issues over time are those that invest in the right legal help at formation. Legal intervention is necessary before major contracts are signed and before the workforce scales. 

Having a lawyer before IP assets face risks would help protect your company’s interests. Legal investment is consistently less expensive than adopting a reactive approach. The work that business attorneys do prevents costs that would otherwise arise unexpectedly and without the option of prevention.