Avoiding legal problems is usually done by early prevention. Unfortunately, when you or your dream team is establishing a business, there are a multitude of important priorities that can spread you thin. (Product or service development, pricing strategy, marketing, office space, setting up websites, phones and other communication systems, landing customers, etc.) However, any seasoned business owner (or high level management) knows that taking the time to address legal issues early on can save you untold amounts of money. Not to mention, legal stress arising from your business cannot be underestimated. It is vicious.
Here are a few common legal mistakes made:
Not clearly defining partnership roles and responsibilities.
Like any other human relationship, there can be a lot of positive feelings in the beginning. With two business partners setting out to tackle the world and make a lot of money, there can be a laser focus on overcoming challenges together, in order to establish the company and start making profit. No one who is in love wants to talk about a pre-nup. Likewise, potential or current business partners may be uncomfortable discussing potential legal disputes between each other.
A word of advice: Get over it.
Deciding what works and what does not for each party, spelling out ownership, rules, responsibilities, procedures and a host of other issues with the guidance of your own business lawyer or a start up lawyer is highly advised. Most importantly, do this early. What partners come to agree on will be influential in forming the actual legal structure of the company. Often, the type of agreement partners have will dictate how a company should be formed, and what should be written in the Operating documents. Set up a meeting for both partners to speak with an attorney to find specifics that should be discussed and agreed upon. Discuss between partners, reach an agreement, and get it in writing.
Not Anticipating legal issues.
The next step is deciding on a legal entity, identifying and obtaining business licenses when applicable, writing crucial service contracts or other mission critical contracts that protect the business. Additionally, depending on the businesses’ situation, it should take great care on giving thought to space leases, employee and human resource legal issues, and tax considerations.
Waiting to find a lawyer you like.
Shopping around for a lawyer when a pressing question arises or you’ve been summoned is not always ideal. It can work out in your favor, sure, however, it is preferable to have developed a relationship with a business attorney that you know cares about your goals and successes. Start a conversation with business lawyers now to talk about future representation, how a firm works, how a firm treats its business clients, etc.
Failing to get it in writing.
Yes, laws exist to support oral and email contracts. However, the stakes for business of any size are simply too great. I’ve heard a few different objections (or excuses) as to why a small business owner or sole proprietor may not keep legal documents. It usually revolves around trust. You don’t want to spook your clients or call in to question that you do not trust them. Maybe your stance is that this world should have individuals that honor their word.
As a business law firm, we not only review our client’s cases and concerns on a daily basis, but we also keep an eye out on other litigation in our practice area both in California and Nationally. Being exposed to the realities of how common and nasty some business litigation is, you have the opportunity to take our word for it now before finding yourself on a docket. Get your agreements in writing, and talk to a lawyer about what you may not be thinking to include in your agreements.
Bad things happen to good businesses and business owners, and a good contract has been the saving grace of many, many people. Make agreements with anyone you do business with that spells out the responsibilities of each party. Vendors, suppliers, employees, contractors, customers, etc. The last point on this topic, for clients who are afraid a deal will fall through if they bring up legal agreements: legal agreements are so common in the business world, you may end up losing respect by not suggesting an agreement that protects both parties interest.
As always, remember to consult with an experienced business litigation attorney before taking action.