|June 8, 2012|
Previously published on June 6, 2012
Knowing when to consult your lawyer can help you to maximize your business’ opportunities and potential.
Inception Of Your Business
Choosing the right entity for your business is an important first step. Not only are there significant tax issues to be examined, but the structure of your company should be flexible enough to grow as your company grows. Issues about adding future owners, how is the business to be controlled and by whom, are all part of the process of getting your business started. Other foundational questions include:
- Are there advantages to being a partnership versus a corporation?
- Is a limited liability company a better choice of entity?
- What about as the business expands?
- Will you have the flexibility you need in your company’s structure to incorporate changes or new directions for the company?
When there is to be more than one owner of the business, there are additional considerations about how and when one owner can buy out the other. You will likely need a buy-sell agreement, including a mechanism for determining the value of the business when an owner is to be bought out. What if one owner wants to cash out but the others want to stay in? What process and procedure will apply?
It’s easier to get these issues ironed out among multiple owners at the inception of the business or in its early stages, when everyone is on the same page. Should that change in the future, you will have an agreement that can guide all the owners in determining how the issues are likely to be resolved. While it may not be possible to prevent all disagreements, a well written agreement signed by all can make future transitions smoother.
Maintaining Your Business
Keeping your business running smoothly requires attention to both internal and external concerns. Key questions to ask include:
- Have you considered whether you would be benefited by an employment agreement with certain key employees?
- What about intellectual property owned by the company — processes, products, innovations, trade names, and trademarks?
- Is this information properly protected?
- Have you made it clear enough that innovations made by your employees while on company time or using company equipment belong to the company?
- What about non-compete and non-solicitation agreements to make it more difficult for former employees to compete against you after they leave?
- What employee benefits do you offer?
- Are there new benefit options that you have not examined yet?
- Do you have to offer these benefits to all employees?
- What about leasing employees, would that provide a benefit to your business?
- Do you have a comprehensive employee manual that expresses your company’s expectations with regard to your employees’ behavior?
- Are your rules and regulations up to date and being uniformly applied?
- What is your company’s internet policy — is it permissible to update Facebook and shop on eBay while on company time?
- Have you made it clear that employees using company computers do not have an expectation of privacy?
- Do you have a policy on how long you keep emails before they are purged?
- These policies may become relevant if the company finds itself in litigation, and the other side wants to review every email you have ever written.
What about the documents you use in your business—invoices, contracts, purchase orders, and other documents? Are they up to date? Is there an interest rate set forth in your invoices so that they generate interest without you doing anything else? While you may never collect the interest, it may make collecting the principal more likely. Do your collection procedures and policies comply with federal and state law? What about your procedures for dealing with customer complaints or threats of litigation? Often notifying your lawyer sooner rather than later will allow you the opportunity to understand all your options before you have to pick one.
Actual claims made in litigation certainly should be brought to your lawyer’s attention. When and how to defend lawsuits, and when and how to pursue claims of the company, are part of the basic service that your lawyer should provide. But what about examining if there is any insurance that might apply to a matter that is percolating and if so, has the insurance company been timely notified of the claim? Are there alternatives to litigation that can be explored—like binding arbitration or voluntary mediation? Should those alternative measures be incorporated into your contracts and invoices? A business audit conducted by your lawyer including reviewing the documents you use every day as part of your business can result in improved productivity for your bottom line.
If you have loans or other obligations, what happens if you need to renegotiate the terms? Think it can’t be done? In today’s economy, many lenders may be willing to consider modifying their loan terms if you get to them early enough and put together a comprehensive approach. Your lawyer may be an excellent resource for understanding what parts of the process are negotiable, and what strategies may be available to you. What if you need to loan the company money? What is the best way to do it? Should you ever threaten bankruptcy? What if a customer threatens to file bankruptcy to avoid paying you? You might be interested to know that there could be advantages to you if a customer files for bankruptcy protection. What about new loans for the company — is there a way to secure them without personal guarantees? What can you do to limit your personal exposure for company debt? How can you avoid inadvertently making yourself liable for company debt? Understanding the rules with your lawyer’s help can keep you from making costly mistakes.
Real estate leases are often negotiated with the help of your lawyer. But what about purchase contracts for real estate, and contracts you use in your business — copier leases, computer purchases, even automobile leases. Having your lawyer review the terms before you enter into the contract may save you a lot of headaches (as well as cost) down the road. Does it make sense for the company to own the real estate from which it operates? And if so, should you form another entity to hold that real estate?
Transitioning Your Business
If you want to keep the business in the family, a lawyer can assist you with your succession planning — making sure that your wishes are put into writing as clearly as possible. If you have a buy-sell agreement with other owners, then making sure the agreements are clear and up to date can make any transition of ownership smoother. Of course you should be certain to keep your personal estate plans up to date, and that can be done as part of a comprehensive succession plan.
If you are buying an existing business, or merging a business into yours, there are many practical considerations. Should you form a subsidiary to operate the new business, or are there other tax considerations — like loss carry forwards — that you need to consider? Should you consider make it an asset purchase, or a stock purchase? What are the differences with respect to existing and future liabilities?
What if you business is to be acquired, are there ways to get paid for your non-compete? How should the payments be structured and secured? Does it make sense to do any seller financing? Whenever there is a significant change in the direction of your business, you should consult with your lawyer at the earliest stages so you maximize your options.
Your Lawyer As An Advisor
A lawyer is as much an advisor as an advocate. He or she should understand you, your needs, and your company’s needs. A good advisor appraises what you need, what you don’t, and what can be done now to prevent problems in the future.