The Entrepreneur's Legal Dilemma: When And How To Consult An Attorney?

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 revenue, 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.

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? Understandably, most entrepreneurs are too concerned with business to hold and record annual shareholder, director and partner meetings and elections of officers. 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. Such agreements can prevent extremely lengthy and costly fights when a business relationship ends.

At best, this typical lack of attention to your corporation or partnership results 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' 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.

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).

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 didn't 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 patents or is engaged in heavy research and development, the process will be more involved and would likely necessitate consultation with a qualified patent attorney. Either way, the effort and expense is simply a cost of doing business in the technology arena.

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.

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 $125 for sole practitioners and small firm lawyers to $175-$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.

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 ($250-$475 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 all similarly-situated 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. 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 another party has already prepared the agreement, your 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 you. Otherwise, you can take your attorney's initial comments and negotiate the terms yourself. Either way, economical legal advice can and should be sought 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 legal advice on most all of your legal questions. If the relationship is new and untested, the attorney may be reluctant to perform limited tasks. In any event, it is always important to clearly define the scope of work and fee agreement up front.

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.