Time To Call A Business Lawyer (pt.1)?

Do I need a business lawyer?

Not every business transaction needs a business lawyer.  You know that.  When one business sells materials to another pursuant to a purchase order, that’s a legally binding transaction, but the parties can’t possibly need or want a lawyer every time this happens.

So when should your business call a lawyer? When you ask yourself “do I need a business lawyer” it’s likely time to consider it.  I advise my clients using multiple criteria plus my personal experience doing this for over 20 years.  Ultimately it comes down to the businesses ability to withstand a painful hit if something goes wrong versus the transaction costs to set up a safe structure for the transaction.

Some criteria I consider to answer the “do I need a business lawyer” question can be classified as:

· Ownership

· Customer

· Vendor

· Product or service

· Liability

· Social / personal

Today’s article will discuss ownership, the the fundamental purposes of forming a business; that is, multiple people pooling resources for the betterment of all participants.  It could mean partners, shareholders, member of an LLC, partners in a partnership, and even lenders.

When assessing whether a potential client should set up a formal, legal business structure using my services, the ownership-centered criteria I discuss with them include:

· Any situation where someone can claim an “interest” in the business, either through a claim on revenue (lender); profits (partner); or decision making (investor/partner)

· Establish who does what, who gets what.  This means setting out officer and employee titles and job duties and expectations.  It could – and should – exclude people who may think they have a claim on decision making (such as a friends and family lender) but whom you really don’t want participating.  Best to get that out in the open now rather than down the road after issues begin to fester.

· Establish decision making authority and process; hierarchy of the relationship. Who runs the show, who signs the checks, who can bind the company.

· Multiple “owners” – that is, if there’s 2 or more.  A small business with two owners can generally operate without a formal business structure, usually they’ll set out their expectations in a business plan or informal memo.  But adding that third party to the mix complicates the matter.

· When the business needs a loan that may exceed owner’s personal threshold to repay.  It might be time to set up liability shields for the owner or the business assets.

· If the owner plans to grow then sell the business.  High growth, high revenue businesses need to be formalized, it’s just that simple.  It could be for many reasons including tax, liability and management purposes.

· A business with lots of assets; a business with lots of unrelated assets (e.g. a restaurant that also owns the property on which it is sited).  Now it’s time to formalize the operations, set up asset protections, and set up succession protections.

· When engaging in business with relatives.  If you can’t talk to them before they get involved in the business about their role as either lender or helper (as many new businesses do), it will become more difficult when things go wrong or when the relative starts getting too intrusive in the operations.  They’ll (hopefully) respect your professionalism and commitment to the business.  If not, better to find out sooner.

No one factor is determinative for every business, they have to be weighed against the other factors I’ll discuss in future articles. For all your businesses legal needs, call me in Asheville, Hendersonville, Fletcher, Waynesville, and all of Western North Carolina at (312) 671-6453, email at palermo@palermolaw.com, for more information palermolaw.com, and to download my V-card click HERE.