Why you need to know what you do not know about securing legal counsel.
In my last article, I discussed readers’ questions about the role of in-house counsel in a company. Now, I want to discuss the kinds of legal issues entrepreneurs should consider even before they launch their business and the value added of lawyers and legal vendors in helping the business to address such issues.
What types of legal services do entrepreneurs need?
There is no cookie cutter punch list of legal issues an entrepreneur needs to consider because different types of businesses may need to address different types of legal issues. While a software development firm may need advice concerning the protection of its intellectual property, an e-commerce clothing retailer may need legal advice concerning how it should structure contracts with its manufacturers and sourcing agents. A liquor store, on the other hand, may need to obtain advice concerning liquor licensing, storage, and distribution.
Common issues that businesses usually need to address early on:
- What should the corporate structure of the enterprise be, i.e., should it be taxed like a corporation, limited liability company, Subchapter S Corporation, or partnership?
- How should the business be managed?
- Where should the enterprise be incorporated?
- What intellectual property does the business have, if any, and how should it be protected?
- Will the business need to obtain licenses to provide its services or sell its products and what is the licensing process?
- How should contracts be framed in connection with vendors, employees, and independent contractors?
Operating in different industries, like the financial industry or construction industry, may also implicate specific types of licensing and compliance issues that may require the input of specialized legal counsel.
There are ways of limiting legal costs in connection with addressing these common issues, such as by using legal vendors, like LegalZoom and Rocket Lawyer, which can provide entrepreneurs form libraries, access to legal advice on as needed basis, and articles addressing a range of relevant topics, but using these resources to cut legal costs should be carefully considered as such facilities are not right in every situation.
Why do you need to know what you do not know?
When it comes to incorporating an enterprise, for example, the mechanics have gotten easier and cheaper, but just because it is no longer necessary to have to hire an attorney to file incorporation papers with the relevant Secretary of State, it does not necessarily mean that using a legal vendor is a good idea. For one thing, there can be a host of considerations bearing on what type of corporate structure an enterprise should have, and where the enterprise should be incorporated. If an entrepreneur is cognizant of these issues, then subscribing to a service to make the filing may be the way to go, but what if the entrepreneur does not understand that different company structures can have significant tax consequences, will she even understand the questions to ask? Does she know what she does not know, but should know?
The lawyer as strategist.
Again, as a lawyer myself, I may be biased, but the chief benefit of retaining a lawyer over a legal vendor service is that the lawyer may not only be in a better position to educate the entrepreneur on what they should know but has the benefit of experience in understanding how decisions made at time zero could play out over time. For example, while limited liability companies are popular, there can be situations where it may be better to incorporate as a standard corporation, such as if the enterprise is developing a high-tech product and the entrepreneur intends on selling the company off after a specific term of years. Selling a corporation off can be much easier than selling a limited liability company and the tax benefits of a limited liability company could be less advantageous in a situation where the enterprise is expected to reinvest profits rather than distributing them to members in the mid-term. Because no two enterprises are the same, the value added of legal counsel is that a lawyer can provide not just legal advice more specific to the circumstances of the enterprise in question, but strategic legal advice, with a view to helping the enterprise benefit in the future from legal decisions made in the present.
In my next article I will outline a strategy for limiting legal costs.
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