Embrace Your Business Lawyer and the Legal Structure He Provides
A well run business will embrace an organized legal structure, not ignore it, because it gives a foundation and structure for the legal operation of the business, can get all owners and managers on the same page, and allows all involved parties to know their role in making the business successful including investors, lenders, and potential purchasers.
Legal Structure for Owners
Surprisingly, ownership of a business can get fuzzy when there are multiple people involved. Setting up the business properly from the beginning, and keeping proper legal documentation, will avoid many ownership claims. You start a business with three buddies, what’s the split of profits? What is the split of work contributed? Who will contribute money, materials, experience? What happens when one owner decides to check out of the business while he’s getting divorced?
Even worse, your Uncle Bob who is retired decides to come down to help out the business on weekends, volunteering his time just because he’s retired and bored. He goes home and tells Aunt Judy that he owns the business, or he’s a “partner”. Then he dies and Aunt Judy comes looking for her share. How is that resolved?
You got it: good documentation of ownership.
Legal Structure for Lenders, Investors or Purchasers
Similarly, lenders who may loan your money hundreds of thousands of dollars; investors looking to obtain equity in exchange for money; or a purchaser looking to buy the company. They all want to know where they stand vis. other owners and others with a claim to the business estate. For example, that means that if you promised your Uncle Bob a ten-percent equity share if he helped out on weekends, that deal is memorialized on paper. No investor wants to lend to, invest in, or purchase a business, only to have some stranger to the transaction show up with a claim of ownership.
How to avoid: good legal structure and procedures will be in place to document all claims to the business, whether liens, loans, claims on equity.
Legal Structure for Outsiders to the Business
Likewise, outsiders to the business include customers and vendors. They want to know with whom they are dealing if they are going to spend time and money with your business. That often means knowing who the ownership is; and whether the business is creditworthy or trustworthy. You’ve all seen the sign, “Since 1980” or some such. Being in business that long, successfully, and being able to prove it, goes a long way in satisfying others that you will produce your product on time, or pay your debts.
How To Set Up Good Legal Structure?
Contact me for help setting up and operating the legal aspects of your business. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.
Email me at: palermo@palermolaw.com.
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