Forming a business entity like an LLC or a corporation typically provides limited liability protection to the owners. But in certain situations, you can find yourself personally on the hook for the debts and obligations of the business. This week we’re discussing the legal concept of “piercing the corporate veil” and why it’s used so often against small business owners.
Hiring employees is often an exciting time for small businesses and nonprofits. But not every new hire will turn out to be a great fit for your organization. Perhaps an employee’s performance simply isn’t up to par. Or an employee commits a major violation of some company policy. Or maybe an employee keeps repeating the same relatively minor infraction over and over again (like spending a little too much time texting while working). Regardless of the size of your business, at some point, managing people means having some tough conversations.
Perhaps you’ve already tried dropping not-so-subtle hints to get an employee back on track. When less formal measures don’t seem to be working, it’s time to turn to more formal disciplinary policies and procedures for addressing employee misconduct. Your employee disciplinary policy is not about becoming a stereotypical corporate overlord and ruining the collegial environment that makes working for a small businesses or nonprofit so appealing. Instead, having a formal disciplinary policy is all about maintaining your organization’s standards in a way that is fair and maintains morale, all without getting you and your company into legal trouble.
As a business attorney, I talk to all kinds of entrepreneurs about both their passions and their struggles. Going out on your own to pursue your passion is scary stuff. (Spoiler alert: The fear never goes away; you just get better at working through it.) So here are five legal tips that that will help every entrepreneur spend more time pursuing their passion and less time worrying.
1. Surround yourself with the right people. I tell every prospective client that a business owner must have a relationship with certain key advisors: your business banker, your accountant, and your business attorney. But you should also surround yourself with like-minded people who have achieved what you’re trying to achieve—other business owners that you respect and trust. These are the people you will most likely turn to for advice and referrals.
As an entrepreneur, you’ll probably need legal advice at some point. But any given legal project should make your business better—whether that means minimizing the risk of future conflicts, saving you time and effort, developing the business strategy, or even improving the image and reputation of the business—not just increase your business expenses. How do you get the advice and representation you need without breaking the bank?
Every business will likely need legal help at some point. But no one goes into business because they want to spend all of the business’ money on legal fees. So when do you need a small business attorney?
Forming A Business
Forming a corporation or a limited liability company (LLC) isn’t hard. The Secretary of State has the necessary forms available online. Many of these forms are pretty simple to complete, but you probably need a small business attorney to help you decide which one is right for your business and your circumstances. A small business attorney can make sure your operating agreement or corporate bylaws are appropriate for your unique situation. Even if you don’t file anything with the Secretary of State, if you’re going into business with a partner, you’ve created a partnership. A small business attorney can help you draft a partnership agreement that covers everyone’s’ rights and obligations long before there are any business disputes over who owns what. Finally, if you’re not sure what needs to be done to keep your business entity in good standing with the Secretary of State, you should consult with a small business attorney.
Writing and Reviewing Contracts
Often, entrepreneurs and small business owners think that contracts and other legal documents can just be adapted from a form found online or borrowed from a friend. And while such a document might be a decent starting point, the devil, as they say, is in the details. You need a small business attorney that understands your business to make sure those details are just right—that every I is dotted and every T is crossed. Your small business attorney should write, or a least review, any standard form contracts that your business needs to make sure they are enforceable. A small business attorney can also review any contracts that your business is asked to sign.
If you’re in the business of creating or designing something, you need to discuss with your small business attorney the difference between copyrights, trademarks, and patents and which your business needs. Once you understand these terms, registering for copyright and trademark protection is relatively straight-forward.
Also called exit planning, succession planning is important for any small business with more than one owner. Your succession plan should cover what happens to your co-owners’ interests if they pass away or simply want out of the business. These types of plans are especially important for family-owned businesses where the owners want to keep the business in the family. You need a small business attorney to make sure an appropriate buy-sell agreement is in place.
And if you decide to buy or sale a business, you need a small business attorney to help you negotiate and draft sales agreements, negotiate and draft asset purchase agreements, and conduct the necessary due diligence.
Don’t Wait Until You’re Sued to Hire a Small Business Attorney
Every small business needs a great working relationship with their attorney long before a lawsuit is on the horizon. If you do, you’ll have an attorney that knows the ins and outs of your business and has done everything possible to help you avoid getting sued in the first place. Preventing litigation is always cheaper than resolving a lawsuit.
But if you are sued (or even threatened with a lawsuit), you need to call your small business attorney immediately. While you might think you can settle the dispute on your own, you don’t want to inadvertently admit something that could be used against you later. Litigation also involves complicated procedural issues and deadlines. If you delay in calling your attorney, you could miss an important deadline or foreclose a possible defense. It should go without saying that the same is true for any government investigations.
Even if you decide to take the do-it-yourself route, you should ask a small business attorney to “check your work.” For example, if you wrote your business contracts yourself, an attorney can make sure the contracts include all of the necessary clauses and legalese and will be enforceable. If you form your own business entity, your attorney can review your operating agreement, partnership agreement, or bylaws and suggest areas for improvement. This type of coaching arrangement can save your business money while building a great working relationship with your attorney. As your business grows and your legal questions become more complex, you’ll already have an attorney you’re comfortable with and who knows your business.
Your Time is Valuable
Last, but certainly not least, you need to hire a small business attorney because your time is valuable. An entrepreneur’s to-do list is always a mile long. If you can delegate some of those tasks to someone with more expertise than you, you’ll save yourself time, money, and quite the number of headaches in the long run. There is certainly something to be said for spending your time on the aspects of your business that you love and entrusting the rest to experts who love dealing with that aspect of the business. For example, most of us aren’t in love with filing our taxes each year; instead, we delegate that task to an accountant—those crazy types that love tax season. Working with a small business attorney is similar; if you really loved writing contracts, you probably would have gone to law school instead of pursuing your business idea.
Don’t just take my word for it. Check out these related articles:
· Step 1 in Starting a Small Business: Hire a Lawyer
· Small Business Legal Advice: Hiring an Attorney
In the coming weeks, I’ll be expanding on many of these topics—how to save on legal fees, which business entity to choose, and how to form your corporation or LLC. If you have topics you would like to see covered, leave a comment below. If you have questions about your specific circumstances, contact me today for a free consultation.