To many small business owners, especially those just starting out, a business attorney may seem like an unnecessary and costly luxury. In the end, however, the decision not to hire an attorney could prove more costly. A business attorney can help a small business protect itself from potential litigation by making sure that the business is properly formed and in compliance with laws affecting the business. In addition, a good small business attorney can help with negotiating and drafting contracts with favorable terms. This article identifies just four of the many reasons why every small business should invest in hiring legal counsel.
Reason No. 1: Setting Up Your Small Business Properly
Unfortunately, unaware of the potential pitfalls of not forming a legal entity that provides personal liability protection for the business’s owners, many small business owners start out with no entity at all. What these owners may not realize, however, is that proper formation of a business entity could protect their personal assets if someone sues the business. For example, if someone sues your company and you are not shielded from liability by a properly formed legal entity offering limited liability, then you could end up having to use your personal assets to pay any judgment that gets entered against your company.
In addition to helping make sure that your personal assets are protected, a business attorney can help you navigate the different kinds of entities available and decide what best fits your individual business. A business could be a corporation, a limited liability company, or any one of a number of other types of entities. Each type of entity has a different structure and comes with various tax and other consequences, making it important for anyone starting a business to choose wisely.
In addition to helping you select and create the correct entity for your business, a business attorney can help you choose and prepare the appropriate documents governing your business’s operations. For corporations, the main document governing the corporation’s operations will be the corporation’s “bylaws”, while for limited liability companies it will be an “operating agreement”. A business’s bylaws (or operating agreement) is the “user manual” for the entity. Generally, it provides basic information for the company, such as identifying the company’s leadership structure, who can make what decisions, and each individual owner’s particular ownership interest in the company.
Reason No. 2: Helping Your Business Maintain its Limited Liability Shield and Compliance
Maintaining your company’s limited liability status does not stop at formation. Rather, it is an ongoing process that business owners must stay on top of or risk losing. For example, most states require businesses operating in their states to register with the state. Thereafter, to remain in good standing with the state, most states also require businesses to file a report each year called an annual report. A company must ensure it is compliant with the registration requirements for each state in which the company does business. Failure to comply with a state’s registration requirements could result in fines and the company losing its limited liability protections.
In addition to registering at the state level, many local municipalities and counties have their own registration requirements. For example, many cities require businesses to obtain a business license prior to operating in their city. Both cities and states also may require particular businesses to apply for and obtain special licenses for their specific kind of businesses (e.g. professional licenses). A business attorney can help you navigate through and apply for the different kinds of licenses that may be applicable to your business and help make sure your business remains in good standing once you obtain any required licenses.
Reason No. 3: Employment Considerations
At the outset, every business with employees should consider having an employee handbook. An employee handbook defines the relationship between employees and management and sets clear expectations for each party. It can also serve as a rulebook for when there is a dispute between employees or between an employee and management. Employee handbooks provide vital protections to employers and should be drafted by an experienced attorney knowledgeable in employment matters. These handbooks also need to be updated regularly as laws change.
Another consideration for employers is the decision whether to have their employees sign employment or other related agreements. These agreements can set a road map for a number of common issues, such as non-competition if the employee leaves the company, ownership of intellectual property developed by the employee while working for the company, and the disclosure of confidential company information.
Reason No. 4: Negotiating and Drafting Contracts and Other Legal Documents
At some point, your business probably will need to enter into a contract. This could be in the form of a lease, a purchase agreement, an agreement to provide services or products to customers, or any number of other kinds of contracts. An experienced business attorney can help you negotiate, review, and draft a contract tailored to your business’s individual needs. Without this help, your business may end up locked into a contract that does not adequately protect your business’s interests, which may prove costly.
This article is meant to provide a brief overview of some of the reasons why small business owners should consider working with an attorney. For more information about this article or how a small business attorney could help your business, please contact Albee Law PC via telephone at (312) 279-0115 or by email at info@albeelaw.com.
