Love Your Lawyer

SBOCTeam — Wed, 02 Jan 2008 13:53:00 GMT

Be sure you understand the critical role of a business attorney to your company's success

It's hardly a secret that some people dislike lawyers. It's also no secret that many of the same people end up hiring lawyers when things don't go their way. Small business owners are no exception. Hiring a lawyer means spending money, for one thing, and most businesspeople would much rather forgo any expense they consider unnecessary. Lawyers also tend to bill by the hour, which can sometimes lead to fairly high bills. This nettles many business owners who wonder if, in the absence of actual legal proceedings, they could handle things themselves and avoid helping an attorney's billable hours go up.

Unfortunately, small business owners who think they are saving money by trying to avoid hiring a lawyer may actually end up costing themselves far more in the long run. "Used properly, a business attorney is a cost-saving tool for your company. A business attorney answers questions specific to your business and lets you sleep better at night and stay focused on growing your business by day," says F. Douglas Mileski, an attorney at Detroit based law firm Garan Lucow Miller PC. Waiting until your business absolutely needs a lawyer when faced with an actual lawsuit, for instance is precisely the worst time to start looking for one, Mileski warns. "As the old saying goes, an ounce of prevention is worth a pound of cure, and legal services are no exception. The cost of fixing a problem can far exceed the up front costs of preventing the problem."

Getting Started
Solid legal advice can guide a small business safely through even its earliest decisions. What is the best form of organization for the company? Sole proprietorship, corporation, partnership, or limited liability company? The answer depends on the type of business, ownership arrangement, as well as tax and regulatory considerations. Unless you are well-versed in the applicable local, state, and federal laws and regulations, an attorney may offer guidance that will be more than worth the price later on. Additionally, if you later choose to amend your company's structure, an attorney can guide you through the legal issues involved in satisfying all affected parties.

HR Headaches
As your business grows and you hire workers, an attorney can provide invaluable assistance navigating the complex and often confusing array of employment anti-discrimination laws that apply where your business is located. What questions can you ask a candidate during a job interview? What can't you ask? How do you protect yourself from a discrimination action or wrongful termination lawsuit? Having your attorney compile or review your company's employee handbook is also a good idea, since it will help protect your business long after the employees are hired.

Contract Concerns
If your business relies on critical contracts with suppliers, customers, or partnering firms, its important to have these contracts reviewed by a lawyer to make sure the terms protect your business's interests especially if they other parties have had their own attorneys review the contracts. Better to consult your attorney before signing the contract than to learn later about sub-clauses buried in the document whose implications you didn't recognize at the time. In the event a dispute arises between your business and other parties, a good attorney can be crucial in negotiating a settlement before anyone initiates litigation. Avoiding litigation will definitely save your business money in the long run.

Expansion
If your business is thriving and you find yourself merging or acquiring another business, there is a multitude of legal documentation that will need to be created and reviewed. A good lawyer will remove the bulk of this burden from a business owner, allowing you to concentrate on the actual expansion plans and how to successfully merge or absorb another business. As you grow, your lawyer can also actively review your current business structure, ensuring the LLC you started still makes sense if your company doubles in size.

Endgame
Finally, an attorney can also provide important assistance if you need to close down your business, helping to insulate your personal finances from any liabilities associated with the business's failure. On a happier note, if your business succeeds, an attorney can shepherd you through the sometimes complicated planning needed to create a good succession plan so that your business will continue to thrive long after you've left.

To start your search for a lawyer, it's good to ask other small business owners and get recommendations. This will help to ensure that you'll end up with someone who already knows the issues you'll likely be dealing with. There are also many legal services out there that can help with short team legal issues or standard legal documents. Prepaid legal services and companies like Legal Zoom can also be viable options for small business owners.

Thinking about Inc-ing?

SBOCTeam — Wed, 19 Dec 2007 09:35:00 GMT

The new year is a good time to take another look at your business's formal structure

As the new year arrives many entrepreneurs find themselves wondering if their small business structure is the right one, both fiscally and strategically. So, to help you decide whether or not your company is ready to take the next step in terms of incorporation, we've prepared a quick primer on three popular business organizational structures.

Limited Liability Company (LLC)
Started nearly 30 years ago as a hybrid between corporations and traditional partnerships, LLCs have proven to be an increasingly popular strategy for small business owners. "Of the small businesses I advise, 80% of themend up as LLCs," says tax expert Anthony Mancuso, author of LLC or Incorporation? LLCs allow multiple owners of a company to directly pass through profits to their personal tax returns, as they would in a sole proprietorship or general partnership, while shielding their various personal assets from liabilities or debts incurred by the business. A simple Operating Agreement, which is filed with the state business authority, establishes the LLC and sets up the rules for governing the company as well as the rights and responsibilities of each partner, or "member." Two concerns to be aware of though-LLCs cannot, by law, exist for more than 30 years and most states require unanimous approval by all other members before one member can sell or transfer their stake in the company.

C-Corporation
Converting your small business to a full fledged corporation may offer some distinct advantages. In addition, you'll find it easier to attract outside investors and one day sell off your business if you are legalized organized as a C-Corp. "Because of a corporation's built in structure and transparency, investment and venture capital groups are much more comfortable funding them," explains Mancuso. And he points out that "nobody goes public as an LLC." Contrary to popular opinion, incorporating doesn't turn running your business into an adminstrative headache. "The annual fees and paperwork involved are not a big deal," says Irwin Ruppel, a retired small business consultant from Aurora, CO. "They should not be the thing that scares a small business away from incorporating."

S-Corporation
Once a widely popular small business structure, S-corporations, which are similar to standard C-corporations except for a more relaxed tax structure, have fallen out of favor recently. "Nowadays, S-corporations are pretty much dead in the water," notes Anthony Mancuso. "Thanks to LLCs, the old conventional wisdom about S-corporations just doesn't apply anymore." This is because LLCs now offer both pass through of profits to your personal tax return and liability protection of personal assets without having to follow the stricter corporate governance rules required of a corporation.
The bottom line? For many small businesses, the LLC arrangement makes perfect sense. But if your business plan calls for a significant expansion, or the need for major capital assistance, or if you may be seeking a payout via a sale in the not too distant future, then becoming a corporation may be the right move.

ONLINE INCORPORATION RESOURCES
Incorporation FAQs
bizfilings.com/learning/incfaq.asp

General business structure/tax advice
score.org/cgi/ask_score.cgi

Small business incorporation resources/books
nolo.com

LLC/Incorporation fees, by state
corporate.com/state-fees.htm

Locate each state's corporate registry
nass.org/busreg/corpreg.html

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Love Your Lawyer

Thinking about Inc-ing?