Managing to Avoid Legal Issues

Bob De Contreras Saturday, January 05, 2008

Management focus changes as companies evolve through the different growth phases. This article applies to all phases, but is probably most valuable to start-ups and companies in the first growth phase.

In this article we focus on highlighting some of the things you need to know about legal issues, dealing with them, and the lawyers who help you resolve them.

Legal Issues

The major legal issues you will encounter in business are in one of the following areas:

Business format/licensing
Bank/investor relations
Protection of ideas
Product protection/liability
Government regulation
Commercial contracts
Employment contracts
Alliance/partner agreements

Types of Attorneys

Like many other professions, corporate lawyers tend to specialize in one or more areas of the law. These lawyers are not usually the ones who litigate. You will have to search specifically for litigation lawyers, also in specialized areas of the law. It might not surprise you that the specialization areas don’t necessarily match the legal issues you face. The typical legal specialization areas are:

Incorporation and capitalization
Taxes
Intellectual property
Contracts and licenses
Employment
Real estate

If you retain a reputable legal firm, you’ll usually work with three lawyers – an incorporation lawyer, contracts lawyer and intellectual property lawyer to handle your legal needs.

Hiring a Lawyer

When hiring a lawyer, two things are important for your success in finding a good one. First, get a recommendation from someone you trust. Second, have a good set of questions for your interview with the candidate lawyer. The answers you get will help you make the best decision on whom to hire. The questions to ask should include:

Are you experienced with my issue? How much experience do you have?
Are you well-connected? (Within the legal community, business community, courts, etc.)
Do you have other clients in my industry? What have you done for them?
Are you a good teacher? Will you help me better understand the legal issues and alternative solutions?
Are you a finder, a minder or a grinder? (lawyer who sells, lawyer who supports existing clients, lawyer who cranks out the paper)
Will you be flexible in your billing? Will you work on a fixed retainer?
You should ask yourself some questions too. What do you need from your lawyer? What should you watch out for in a lawyer? Some examples include:
Is this a frustrated business person disguised as a lawyer? A lot of lawyers give you business advice when you think you’re getting legal advice.
Does this person communicate well? Are you getting the whole story or just what the lawyer thinks you need to know?
Is the lawyer’s office conveniently located? You may need to frequent the lawyer’s office.
Do I like the person? You’ll probably be working through some tough issues. You need to have trust and confidence in your lawyer – start with liking the person.

What Will You Need a Lawyer For?

Prepare and file your articles of incorporation.
Create your company bylaws.
Prepare initial board of director resolutions.
Create the documents that support the company’s capital structure.
Draft initial contracts and sales agreements.
Prepare employment offer letters and agreements.
Prepare investor agreements.

Documentation and Files

File original copies. Yes, you can work off of fax and photo copies, but for important documents that might be needed in court – file an original copy.
Use blue ink for signing documents. This is a good way to see that you have an original copy.
Don’t save draft versions of documents. They can be captured for a deposition and the history of changes may lead the court to a different view of the meaning of the final document.
Only accept changes if in writing. English is an imprecise language that often leads to miscommunication. Written legal phraseology is standardized and clearly defined to avoid confusion and lost meaning.
Initial all pages. It’s all too easy to change pages in an agreement. To protect yourself, counter parties should initial each page and sign the last page of the agreement.
Staying out of Court
To avoid issues, plan ahead and get legal advice early.
If threatened with legal action make an early response to avert a legal suit.
Use a face-to-face settlement meeting to prevent court.
Use independent arbitration to avoid court.
Considerations for the inexperienced
Always use a sales agreement to avoid issues of ownership, license, intellectual property, liability, confidentiality, and more.
Don’t save too much paper – it will make it more difficult for you to find the documents you need when you want them.
Don’t save too much email – it will make it more difficult for you to find the notes you need when you want them.
Beware of outsiders pitching ideas to you – if you have it in design and then release it to your clients they can claim it was their idea.
Have a buy/sell agreement – you never know what’s going to change in the future.
Have a partner agreement – you never know how the relationship is going to change over time.

Clearly there are many more considerations, issues, needs and obstacles that require you to retain legal council. This article is just an attempt to help guide you on the path to retaining the proper legal council to protect you early and before you have a need caused by litigation.