Finding The Right Business Attorney
“Give me six hours to chop down a tree,and I will spend the first four sharpening the axe.”– attributed to Abraham Lincoln
Why Would an Entrepreneur Ever Need to Hire an Attorney?
Because of the modern world.
Structuring the business. Protecting yourself against competitors. Obtaining financing. Dealing with investors. Anticipating business obstacles. Building walls around your intellectual property. Complying with regulations. Negotiating and drafting the right kinds of leases and purchase agreements. Handling disputes with business partners. Hiring or firing employees. Securing the licensing needed to run the business.
These are just a few of the issues that every entrepreneur and business owner will face, sooner or later, in running their business. Each of these issues involves legal considerations and often has tax consequences. Entrepreneurs need to do everything in their power to protect themselves legally, and the only real way to do that is to hire experienced, knowledgeable, and creative legal counsel. Yet entrepreneurs often significantly underestimate how much help they’ll need from an attorney. And what many entrepreneurs don’t appreciate, at least at first, is that the need for that help starts at the very beginning, and only increases as the business grows and moves toward maturity or an exit.
Every business needs two professionals early on: an accountant and an attorney. The need for having an accountant on your business team is easy to understand: Entrepreneurs need a professional to set up and organize the financial books of the business, assemble and interpret financial statements, and prepare federal, state, and local tax returns. The reasons for engaging a business attorney may not at first be as clear, but hiring an experienced business attorney is critical to any successful business.
An experienced, knowledgeable business attorney provides vital assistance in virtually every area of a business and every step that the business takes:
IDEA: Just about every business starts with an idea. That idea may be part of the company’s intellectual property. That intellectual property makes the entrepreneur’s business special. And intellectual property (IP), like any other kind of property, needs to be protected. A company’s intellectual property may include a unique algorithm, a new product design, or a compelling brand name. Whatever that IP is, the company should have a business attorney to help identifyand protect that property, either by securing the necessary copyrights, trademarks or patents, or by taking the right steps to treat it as a trade secret. And that protection should be firmly in place before that entrepreneur even considers sharing the idea and its details with anyone else, whether investors, employees or partners.
STRUCTURE: As soon as that idea is properly protected, the entrepreneur will need to determine what the ownership structure of the business is to be. The choices run from sole proprietorship to corporation to general partnership to limited liability company to limited partnership, and more. Determining the entity’s legal structure is vital, and which choice is the right one will depend on what the business will be doing, where the company will operate, how many investors or partners are involved, what the entrepreneur’s, investors’ and partners’ respective ownership and financial objectives are, and which potential liability concerns and tax issues apply.
It’s wise to work with an experienced business attorney who can help the entrepreneur make the right choice. The difference between making the right or wrong decision on ownership structure can be financially and personally huge, even devastating. Yet all too many entrepreneurs, underestimating the importance of that decision, choose the simpler route and pick a sole proprietorship or partnership structure to avoid what they believe is the bigger hassle and cost of formally setting up the business as a corporation or LLC.
If an entrepreneur decides to run her business as a sole proprietorship or partnership, and she then, for example, hires an employee who’s bound by a non-compete agreement with a competitor, or she infringes on someone else’s patent, what happens? That competitor or that patent owner will come after her and her business, and they’ll also go after her personal assets—all outcomes that could have been avoided.
FORMATION: If more than one founder—whether entrepreneur or investor—is involved in the business, it’ll be important to have a business attorney help prepare a founders’ agreement, sometimes called a shareholder agreement, a buy-sell agreement, or a member control agreement, that clearly addresses what everyone’s rights, responsibilities, ownership, involvement, and interests are in the business. This is especially important later on when some dispute arises between owners—and it always does, sooner or later. If and when that happens, everyone will be able to go back to the original, written contract and see what was agreed to initially. Untold numbers of lawsuits have been avoided because the founders had the foresight to take the right steps right out of the gate to have the original agreement between them written down in a legal document.
CONTRACTS: If the company plans to have employees, independent contractors, or both, it’ll need to have an experienced business attorney draft employment contracts, stock option offers, independent contractor agreements, work-for-hire agreements, and other engagement documents to address these issues. The company will also need to have its attorney advise the business on who properly qualifies to be treated as an employee or independent contractor. There will also be confidentiality, non-competition and intellectual property ownership issues that will percolate up as part of these engagement relationships, and the security of the business and its assets may well depend on the company’s working closely with its attorney to make sure that those issues are addressed before it’s too late.
NON-DISCLOSURE AGREEMENTS: Once the entrepreneur starts dealing with outside companies and potential business or joint venture partners, it’ll be vital that she protect her company’s interests by having the company’s business attorney prepare the right non-disclosure agreements. And as the business grows, the entrepreneur should plan to have the company’s attorney draft the necessary operational agreements, licensing agreements and more, which each will be specific and tailored to the company and its interests.
PROSPECTIVE LITIGATION: Virtually all entrepreneurs see litigation as something to avoid at all costs. In the modern business arena, however, it’s likely that a company will be involved in litigation at some point during its business cycle. The wise business owner will work with his company's attorney to plan for litigation before it happens to help minimize risks and costs. He can proactively anticipate problems by working with the attorney to (1) identify the nature of potential disputes, (2) structure transactions and business dealings to reduce the likelihood of litigation, and (3) put the company in a more prepared position just in case a lawsuit arises or needs to be initiated by the company to protect its own interests. Doing this will give the company considerable leverage in the event it later faces litigation. That planning process can also help the company streamline operations, improve efficiencies, and even increase profits.
GROWTH AND EXIT STRATEGIES: As the business develops and matures, the entrepreneur may decide to start exploring a variety of options to catalyze the company’s evolution and the entrepreneur’s exit strategies, which may include acquisitions of other companies, mergers, launching an initial public offering, or pursuing an outright sale of the business. Working with an experienced business attorney who thoroughly understands the entrepreneur’s and company’s objectives and interests is critical to help plan and execute these options and strategies. The sooner the entrepreneur works with that attorney to plan and schedule that program, the better served the entrepreneur and company will be.
Finding the right attorney is important. You want a business attorney who:
Understand your goals and your company’s unique characteristics and objectives: your company’s story.
Has extensive, deep knowledge of corporate law, contract law, employment law, and intellectual property law.
Is experienced and knowledgeable about your industry.
Even more importantly, understand your business and your industry. She can help effectively guide you through many of the major and minor challenges you’ll face—and rest assured, you will—because she’s been there and done it before for others. The peace of mind alone that provides for entrepreneurs is irreplaceable.
You’re looking to hire an attorney, not a friend. You probably already have friends offering free “legal” advice. What you and your company really need, however, is to hire and establish a professional relationship with a skilled, objective, and knowledgeable attorney who will help you anticipate and navigate around and through the challenges companies regularly face.
To start to narrow the field of which attorney or firm is right for them and their company, people often ask family members, friends, or an attorney they already know for a recommendation. That’s not necessarily likely to work well, because while the attorney recommended by one of those sources may be someone who did great work on a personal injury or family law matter, he doesn’t have the experience, knowledge or familiarity necessary to meet the entrepreneur’s requirements.
A scripted or one-size-fits-all approach won’t work when addressing your company’s legal needs or requirements. A more fruitful search could start by asking other entrepreneurs who you trust in your industry, your professional contacts, or someone who regularly deals with attorneys, accountants, and other professional advisors: Who have they worked with? What types of matters did they work with him on? Was that person easy to work with? Was he good? Did that person know his stuff? Why was he good?
More challenging to find, but just as necessary for the right fit between the entrepreneur and the attorney, are several characteristics that ideally describe the special, trusted role that the attorney will play in the entrepreneur’s and company’s success:
Responsive and available: You want an experienced business attorney who’ll be responsive, and will be available when you need him.
Good communicator: You want to work with an attorney who communicates in a way that’s easily understandable, who knows your company’s story and objectives, who’s familiar with the language of your business, and who doesn’t look to make things unnecessarily complicated.
Resources: You want to know that the attorney has right at her fingertips the resources you need. Just a few examples:
The attorney and her firm have made substantial investments in technology that position them to handle your documents, information, and communications in a readily accessible way that’s secure, cost-efficient and highly responsive;
The attorney has the right kind of valuable business contacts in many different areas in the community, contacts who can be helpful to you as your business grows;
The attorney knows many of the people inside and outside your industry who may be valuable for you to meet and network with; and
The attorney can promote and help you develop the professional relationships that will advance and accelerate your and your company’s performance and market position.
Who will you be working with: Determine if you will be working with the attorney you first met with, or if you’ll be handed off sight unseen to an associate or someone else who doesn’t know or understand you or your business. Make sure you know exactly who you’ll be dealing with if you hire this attorney or firm, and be sure that they have the experience and industry-specific understanding that your company will need.
Entrepreneurially minded: You want to work with an attorney who’s entrepreneurially minded. You want an attorney who not only genuinely enjoys working with entrepreneurs, but who himself is optimistic, thrives on innovation, thinks creatively, has a high level of determination, is comfortable with change, ambiguity and uncertainty, builds successful relationships, and is self-motivated. At the same time, you want your business attorney to be a team player who’ll work effectively with your other professional advisors.
No “yes men”: You don’t want an attorney who’ll agree with anything and everything you decide or want to pursue. What's far more valuable for your business is an attorney who thinks and acts independently, and who based on his experience and perspective both provides real world, pragmatic, and strategic advice and counsel, and offers guidance under the strict, traditional realm of legal advice. One of the most important roles your business attorney plays will include objectively and creatively providing you with knowledgeable legal advice and counsel tailored to your company’s needs and objectives—someone who probably more than once will open your eyes to a situation that’ll have you gratefully say, “I hadn’t even considered that!”
Talented negotiator: You want to work with an attorney who is a responsive and effective negotiator, which means that during negotiations with outside forces, he not only will understand and promote your company’s preferences and goals, he also will help you understand the other side’s position, flexibility and motivations. By employing an objective third-party perspective about each side’s wishes and posture, the attorney can help the two sides more quickly and economically reach a result that works for each of them.
Risk tolerance and risk mitigation: A compatible appreciation for risk between entrepreneur and attorney can be helpful. You and your attorney don’t necessarily need to have an identical perspective on acceptable levels of risk. However, it’s important that your attorney know and understand what your and your company’s tolerance for risk is so that your attorney can properly advise you, including ways to mitigate that risk:
If you’re the type who tends to leap before looking, you’ll want your legal counsel to spell out what the various risks are so that you’re in the position to make more informed business decisions (especially before leaping).
If you’re an overly cautious person, while the attorney tends to be imprudent or impulsive, or vice versa, the likelihood of a good fit will be slim or worse.
A business attorney experienced in working with entrepreneurs knows how important it is to advise an entrepreneur on protecting the company’s interests in ways that are consistent with the company’s expressed appetite for risk and opportunity. And because of that experience, the attorney knows how to discuss concerns about liability without sounding pessimistic or overly negative.
Sensitive to legal costs: Sensitivity to legal costs on both the entrepreneur’s and the attorney’s part is important. Entrepreneurs often underestimate or overlook their need to have an experienced attorney as part of their business team. That’s sometimes the case because the entrepreneur is so focused on what she sees as the immediate needs of her company—funding, hiring, marketing, product launches—that the company’s legal needs, and devoting sufficient dollars in the budget to meet those needs, are treated almost as an afterthought. Legal services can be expensive, but rather than cutting corners or even avoiding addressing legal issues that affect the business, it’s important that the entrepreneur understand which issues for his company should be addressed or anticipated now, and which ones can be scheduled later, and when, and why. An experienced business attorney who’s been in those trenches many times, and who knows what issues entrepreneurs will face in growing their businesses, can be invaluable in helping plan and execute that process, and with cost considerations clearly in mind. At the same time, the business owner wants an attorney who understands how to work with entrepreneurs and appreciates the importance of helping entrepreneurs balance their legal expenses with their need for legal counsel.
Establishing clear operational guidelines early on with the attorney will help set expectations on legal pricing and billing, and will in the bargain promote a healthy, long-term working relationship between entrepreneur and attorney.
Measuring the value: This is still an art, not a science, but the entrepreneur will want to have some understanding of the overall worth of the legal services provided. It’s important to develop a ladder of metrics with the attorney that fits the company’s requirements—whether measured by dollars spent on type of legal issue, legal costs as a percentage of total budget, percent of net revenue spent on legal costs compared to industry norms, or some other yardstick. It’s also important to regularly monitor, evaluate, and promptly respond as necessary to changes in those measurements of value, especially when those changes are important, sometimes critically so, to the overall health of the company. Evaluating the sometimes more subjective factors, such as effectiveness or responsiveness, while tricky, is still equally important to incorporate into an assessment of what the company is getting for the legal dollars it’s spending or should be spending.
The time commitment: Don’t underestimate or minimize not only the financial cost of legal services, but the need to devote an irreplaceable asset to meeting your company’s legal requirements: Time—yours and that of your employees and other professional advisors. Realistically addressing those requirements will require your attention, presence, and focus, frequently while you have at least fifteen other things competing for your attention. The wise entrepreneur understands that involving herself properly in that process will not only pay significant dividends to the company, it will help make her a more savvy and strategically minded business owner and operator.
Chemistry: One of the most important and necessary factors from the very beginning is chemistry. There has to be a solid, hand-in-glove, personality fit, a true professional relationship, between the entrepreneur and the attorney. You need to be comfortable with each other, you need to be able to relate to one another, and you need to be able to communicate openly and honestly with each other. You’re going to be working closely with this person for quite some time, and if you don’t on both a personal and professional level feel relaxed and settled with that attorney, your ability to work together and communicate effectively will sooner or later be compromised, to everyone’s detriment.
Mutual trust: The relationship is the gateway to mutual trust, which must exist between the entrepreneur and the attorney for the relationship to be successful. Without mutual trust, there is no relationship.
Changing needs: Just as the company will change and evolve and grow and develop over time—responding to market changes, new product or service niches, evolving or revolutionary challenges by outside competition, expansion opportunities, sales team developments, growth in other geographic areas, financing opportunity fluctuations, and many more—the company’s legal needs will change, too. Part of the company’s strategic planning process should include projecting how the company’s needs for legal services will change as the company’s path widens over time, and how those changes will be addressed. It’s also important to make sure that these two plans mesh financially and chronologically so that the company’s growth plans aren’t compromised. Planning, as is usually the case, is critical to the company’s and the entrepreneur’s short- and long-term success.
Necessary disclaimer: This article is a resource guide for informational and educational purposes only, and does not take the place of hiring an attorney. No information in this article creates an attorney-client relationship between the reader and the author. If you would like to hire an attorney, feel free to give us a call at 612-343-4555 or send an email to kene@kselaw.com to request a consultation.