An accountant and a lawyer are two professionals that every business will require early on. You need someone to assist you set up your “chart of accounts,” analyze your numbers on a regular basis, and complete all of your required federal, state, and local tax filings. However, the need for a company attorney may not be as obvious. From fundamental zoning compliance and copyright and trademark guidance to formal firm incorporation and lawsuits and liability, a qualified business attorney will be invaluable. To begin, here are some general guidelines for dealing with attorneys:
If you are being sued, it’s too late.
Most small businesses wait until the sheriff arrives at their door with a summons to hire a lawyer. Bad decision. Before you are sued, you should contact a skilled business lawyer. It’s too late once you’ve been served with a summons and complaint; the problem has already occurred, and the only question is how much you’ll have to pay to remedy it (in court costs, attorneys’ fees, settlements, and other charges).
The judicial system in the United States is a lot like a Roach Motel: it’s easy to get into court, but it’s very tough to get out once you’ve been “trapped.” While no one enjoys paying attorneys’ fees for anything (let’s be honest, no one enjoys paying or dealing with lawyers in general), most lawyers agree that the fee a lawyer will charge to keep you out of trouble is a small fraction of the fee a lawyer will charge to get you out of trouble once it has occurred.
Big firm or small firm?
In general, the bigger the law firm, the more the overhead, and thus the higher the hourly rates you’ll have to pay. Larger businesses, however, have a variety of benefits over smaller businesses. Lawyers have gotten very specialized during the last 20 years. If you choose a solo practitioner or a small firm to represent you, it’s possible that they won’t have all of the abilities you’ll need to expand your company. I’m not aware of any solo practitioners or small firms (under ten lawyers) capable of handling your lawsuits, negotiating your office or retail lease, filing a patent or trademark, drafting a software license agreement, advising you on terminating a disruptive employee, or overseeing your corporate annual meeting. These “generalists” will eventually have to refer you to specialists, and you will be dealing with two or three (or even more) attorneys.
While larger companies are more expensive to work with, they have two major advantages: 1) they usually have all of the legal talents you require “under one roof,” and 2) they have a lot of power in the local, regional, and (perhaps) national legal communities. A threatening letter from a “powerhouse” law firm with offices in 30 jurisdictions is far more terrifying than one from a single practitioner who is not licensed to practice in the defendant’s state. Being affiliated with a large, well-known law firm may also provide intangible benefits, such as the ability to introduce you to finance sources or utilize their reputation as a reference when seeking partnership arrangements. If you manage a fast-growing entrepreneurial company with aspirations to go public (or sell out to a big corporation) in the future, you will almost certainly need to engage with lawyers whose names are known in investment banking and venture capital circles.
Types of Attorneys
Lawyers, like doctors, are becoming more specialized. Someone who primarily handles wills, real estate closings, and other “non-business” concerns is unlikely to be a suitable fit for your company. At the absolute least, you’ll require the following abilities. The more skills that a person possesses, the better!
You’ll need a lawyer who can quickly grasp your business, draft standard form contracts with customers, clients, and suppliers, and assist you in responding to contracts that others want you to sign.
2. Business organizations.
You’ll need an attorney to assist you decide whether a corporation or a limited liability company (LLC) is the best method to structure your firm and prepare the necessary paperwork.
3. Real estate.
Commercial leases, such as those for offices and retail businesses, are quite complicated and are always written to suit the landlord. You might think they’re not negotiable because they’re usually “printed form” documents. Not so. Your attorney should have a standard “tenant’s addendum” that can be added to the printed form lease deal and has clauses that benefit you.
4. Taxes and licenses.
Although your accountant will prepare and file your business tax returns each year, your lawyer should be familiar with how to register your business for federal and state tax identification numbers, as well as the tax implications of the more basic business transactions that your company will engage in.
5. Intellectual property.
If you work in the media, design, or any creative field, having a lawyer who can assist you register your products and services for federal trademark and copyright protection is a huge bonus. In most cases, however, these activities are handled by specialists who specialize in “intellectual property” legal activity. If your lawyer claims to “specialize in small businesses,” he or she should collaborate closely with one or more intellectual property specialists.
What to Ask When Interviewing Attorneys
- Are you experienced? Don’t be scared to grill a lawyer on his or her experience. Ask if he or she has ever managed an incorporation if you know you wish to incorporate your company.
- Are you well-connected? Your business attorney should act as a legal “internist,” diagnosing your situation, doing any necessary “small surgery,” and referring you to local specialists for “major surgery” if necessary. No lawyer can reasonably be an expert in every field of law. If your company requires specialist legal services (a graphic designer, for example, may require someone who is aware with copyright rules), your lawyer should either be knowledgeable in that field or have a working relationship with someone who is. You shouldn’t have to go for a new lawyer every time you have a different type of legal issue.
- Do you have other clients in my industry? Your lawyer should have some knowledge of your sector and its legal landscape. If not, he or she should be willing to learn everything there is to know about it. Look for copies of the same publications and professional literature that you read on your candidate’s bookshelf or magazine rack. Attorneys that represent one or more of your competitors should be avoided. While the legal code of ethics (yes, there is one) requires your lawyer to keep whatever you tell him or her confidential, you don’t want to risk sensitive information being accidentally leaked to a competitor.
- Are you a good teacher? Your lawyer should be willing to educate you and your employees about the legal environment in which your company operates. He or she should explain what the law says and how it affects the way you do business so that you can anticipate issues. Freebies such as newsletters or memos describing significant developments in the law that affect your business will be distributed by the proper lawyer.
- Are you a finder, a minder, or a grinder? There are three sorts of lawyers in almost every law company. The “finder” looks for new clients and brings them in; the “minder” takes on new clients and ensures that existing ones are satisfied, and the “grinder” conducts the clients’ work. Your lawyer should act as both a “minder” and a “grinder.” If you suspect the lawyer you’re speaking with isn’t the one who’ll be working on your case, ask to meet the “grinder” and make sure you’re comfortable with him or her.
- Will you be flexible in your billing? Due to a “supply” of attorneys, with far too many practicing in most geographic areas, lawyers are in a position to negotiate their prices like never before, and it is unquestionably a “buyer’s market.” However, unlike the personal injury lawyers who advertise on television, corporate lawyers almost never work for a “contingency fee,” which is paid only if your legal job is finished to your satisfaction.
Most lawyers will charge a flat fee for typical procedures like incorporating a corporation or LLC, but they will not volunteer a flat cost unless you specifically request it. Ask if the flat cost covers disbursements (out-of-pocket expenditures incurred by the lawyer, such as filing fees and overnight courier charges) and when the flat fee is due. Many lawyers demand upfront payment of a fixed fee in order to cover their out-of-pocket expenditures. However, you should always ask for a “hold back” of 10 to 20% of a fixed charge if the lawyer doesn’t do a good job.
If the situation involves litigation or agreements with third parties, lawyers will be hesitant to quote flat prices. “Even though it’s a transaction I’ve done dozens of times, if the other side’s lawyer turns out to be a blithering idiot who wants to fight over every comma and semicolon in the contracts, then I can’t control the amount of time I’ll be putting into the matter, and will end up losing money if I quote a flat fee,” says a lawyer friend of mine. You will have to pay the lawyer’s hourly charge in such cases. Always request a formal estimate of the time involved, as well as advance warning if circumstances arise that cause the lawyer’s estimate to be exceeded.
If a lawyer requests a retainer or a deposit against future fees, ensure sure the money will be put to good use rather than being held in escrow forever, and that the lawyer agrees to return any unused amount of the retainer if the deal falls through for any reason. Any lawyer who offers to take an ownership stake in your company in exchange for a fee should be avoided.
Questions to Ask Yourself Before Hiring an Attorney
Is this person really a frustrated businessperson disguised as a lawyer?
When it comes to business affairs, some lawyers tire of being on the outside looking in. A lawyer like this can try to question your business judgment. A lawyer who is overly interested in the nonlegal parts of your employment should be avoided.
Does this person communicate well?
“I don’t hire my lawyers to tell me what I can’t do; I pay them to tell me how to accomplish what I want to do,” J. P. Morgan once stated. The ideal lawyer for your business will not simply say “That’s OK” or “No, you can’t do that,” but will lay out all of your options and tell you what other firms in similar circumstances have done in the past.
Are the offices conveniently located?
You’ll need to see your lawyer frequently, especially in the early years of your business. When you need legal counsel, you shouldn’t have to squander a day going to and from the nearest metropolis. When in doubt, go with a local attorney.
Do I like this person?
Remember to trust your intuition and feelings. At all times, you should be able to talk honestly and freely with your attorney. Continue looking if you don’t trust a certain lawyer or believe you and he or she have opposing viewpoints. Remember that Ally McBeal is not reality: accuracy, thoroughness, intelligence, willingness to work hard for you, and attention to detail are more vital qualities in a lawyer than attractive looks and a dynamic personality. As one of my former clients once put it: “‘Never trust a lawyer with 20/20 vision and Armani,’ my father used to say. I hired you as my lawyer because you appear to be employed.” That is a praise to the proper counsel for your company.