|
THE
ENTREPRENEURS' LEGAL DILEMMA:
WHEN AND HOW TO CONSULT AN ATTORNEY?*
A. Introduction.
Legal
issues represent only some of the many problems facing
entrepreneurs and start-up companies. If thought about at
all, they often get pushed far down the list of pressing
worries, behind revenues, overhead, marketing, etc. Of
course, that is assuming a young company is even aware
of the legal issues surrounding its business. Those
legal problems that go undetected or ignored can
ultimately be the most devastating.
This
article points out some of the more common legal issues
facing growing technology companies, and offers
suggestions on how you can economically protect your
business investment through the practical use of
attorneys.
B. Corporate
Structure and Governance.
Everyone
knows they should create some sort of legal entity for
their business. Often, new ventures take the shape of
ordinary corporations, either as small-business or
"S" corporations, or the newer "LLC"
(limited liability company). Other businesses may begin
either as a general partnership or a limited liability
partnership, or "LLP".
However,
most business owners ignore the on-going legal
requirements to maintain their corporation or other
business entity. What maintenance, you ask? Most
frequently, entrepreneurs are understandably too
concerned with business to hold and record annual
shareholder, director and partner meetings and elections
of officers. Although important, corporate resolutions
concerning significant business events such as
financing, major equipment leases, licensing agreements,
key employee compensation agreements and the like are
usually ignored. Most importantly, shareholders in
closely held corporations frequently fail to create
shareholder agreements, sometimes referred to as
"buy-sell" agreements. These agreements can
prevent extremely lengthy and costly fights at the end
of a business relationship.
At
best, this typical lack of attention to your corporation
or partnership will result in incomplete or poor
records. At worst, it can end with the loss of limited
personal liability to you and lead to nasty disputes
over control of the business itself.
So
what's the cure? Simple. Just like your annual physical
(the one we all are supposed to have), let an attorney
review your corporate records once a year. All major
business transactions and events can be properly
recorded and approved, and the chance for later
objections will be greatly reduced. Previous problems
with record keeping can be corrected.
C. Employment
Issues.
Almost
every company has employees, but few companies worry
about employment issues until they have already
developed. For example, most firms use (and should use)
non-compete, non-disclosure and invention assignment
agreements to protect their technology. If your company
does not, you are truly hurting your ability to compete
in the marketplace.
On the
less obvious side of things, what about old-fashioned
employment agreements which cover topics such as
compensation, benefits, leave policies, termination,
taxes (especially important for independent contractors)
and other issues? Often, a firm's employees are equally
as valuable as its technology assets. Doesn't it make
sense, then, to clarify your employees' relationships
with the company? An experienced attorney should be able
to review your employment agreements, policies and/or
handbook and offer practical legal advice on how to
prevent future employment problems. And without breaking
the bank (see Section F below).
D. Intellectual
Property.
Ever
heard of an intellectual property "audit"?
Chances are good that your company could benefit from
having one.
In an
IP audit, your company's intellectual property assets
and rights are reviewed by an attorney to determine if
they are adequately protected under applicable law. An
audit might reveal that you are relying upon
unregistered trademarks or service marks. Your license
to use (and/or package) certain technology important to
your services or products may have expired or need
re-negotiating. Your patents may be neither as broad nor
as strong as you thought. Your employees might be
divulging trade secrets to competitors and customers
without even realizing it. An attorney's review of your
company's technology might even identify intellectual
property assets you did not know you had.
Intellectual
property audits can be as easy as an interview with your
attorney, followed by her simple review of applicable
documents such as licenses, non-disclosure and
third-party agreements. The attorney may then write a
report or letter of recommendation to the company
identifying weaknesses and problem areas. Of course, if
your company holds numerous patents or is engaged in
heavy research and development, the process will be more
involved. Either way, the effort and expense is a
necessary cost of doing business in the technology
arena.
E. Contracts.
Third
party agreements (those between your company and others)
are another area in which a small amount of legal advice
in the beginning could save costly headaches and trouble
in the end.
F. The
Cost to You.
Okay,
so you have decided to get legal advice for your company
on a more regular basis. Now, what's this gonna cost?
Not as
much as you might expect. For example, Atlanta attorneys
typically bill at hourly rates ranging from $175 to $275
for sole practitioners and small firm lawyers to $300+
for partners in large firms. Of course, many lawyers
(particularly those in small firms) will agree to do
discrete legal tasks for a flat charge. Therein lies
your best value.
For
example, in many cases you can find experienced
attorneys willing to review your corporate records and
prepare necessary corrective documents for approximately
2 to 3 hours of billable time (approximately $300-$600
for a sole practitioner/small firm lawyer). After a few
simple questions (often over the phone or in a free
consultation), the attorney should be able to give you
an accurate and binding quote.
Employment
agreements are another area where you can save money.
Have an attorney draft one agreement for use with
same-category employees (such as programmers or
engineers). Depending upon your company size, the number
of employees and other factors, such an agreement might
cost between $500 to $1,000 dollars. That same form may
be used for each employee that you hire under the same
criteria. Then, if you need to modify the agreement to
reflect discrete changes between employees, those
modifications should be easy for your attorney to make.
Review
of contracts and licensing agreements are another area
where you can effectively use an attorney. If the third
party has already prepared the agreement, an attorney
can review it and provide you with comments and
suggestions for a relatively small fee (approximately
2-3 hours of attorney time). If the agreement is
important enough, it might be worthwhile to let your
attorney handle the negotiations for your. Otherwise,
you can take your attorney's initial comments and
negotiate the terms yourself. Either way, economical
legal advice can and should be had in most situations.
Of
course, all fee arrangements and how much or how little
your attorney becomes involved in your legal affairs
depends in large part on the relationship you have
together. If there is an on-going relationship of trust,
the attorney will be more likely to give you
"quick" advice on most all of your legal
questions. If the relationship is new and untested, the
attorney may be reticent to perform limited tasks. In
any event, it is always important to clearly define the
scope of work and fee agreement up front.
G. Conclusion.
Hopefully,
the foregoing has provided some insight into the ease
with which legal advice can be sought and obtained for
your business. Many business owners avoid using lawyers
for fear of outrageous legal bills and losing
decision-making control. However, both problems can be
controlled up front. Remember, you are the consumer and
your attorney should tailor her services to meet your
needs. If you use your attorney wisely and at the right
time (i.e., before you make an important decision or
sign on the dotted line), your business will see the
benefits.
© 2006
Jay D. Brownstein, Brownstein Nguyen & Little LLP. All
rights reserved.
*This
article is intended for general information purposes
only. Legal issues affecting individual companies
require separate analyses and solutions. You should
consult an attorney for legal advice specifically
tailored to suit the needs of your firm and business.
|
