Every company should have legal representation. If you are a start-up company you want to interview several attorneys (2-3) and give them a background on your company. You want to know how they bill and what priority you will be given at the firm. Which attorney will be assigned to your file? The biggest issue plaguing most attorney-client relationships is a firm’s response system if your business is in a crisis. Are phone calls returned same day? Who is the team in place to assist your company? But most importantly, does your attorney have a business sense for the operations of your business? Many attorneys can give you the mechanics of a licensing or distribution agreement but they are not savvy enough to understand the nuances of the industry that will warrant that added provision in the agreement that avoids litigation down the road. Establish an attorney-client relationship. Sign a retainer with the firm so when a quick question needs to be asked your attorney is in place to take your call; guide you in order to avoid litigation or prepare the needed document that memorializes the handshake agreement before either side spends money on production or discovery. 99% of the time the parties are so anxious not to lose the “deal” that motion is set into place before a written agreement can be written and approved by both sides. When conflict arises, human nature prevails, and each side remembers only the facts of the negotiations that benefited them. Young companies believe they “save” money by not using an attorney at the beginning stages of growing company. In actuality, that is when you need qualified advice most of all.
Every good business owner is watchful of the company’s overhead. But the old adage of being a “penny wise and pound foolish” rings true when a Company attempts to save the cost of attorney upfront on a deal only to pay a higher cost in legal fees to resolve a dispute that was not originally or properly documented at the beginning of the deal. To save cost Company’s will sometimes pull boilerplate agreements from the internet and fill in the blanks to serve as a temporary need. However, when a deal goes wrong the agreement is the only document that the parties can turn to in hopes that it includes terms that cover the current dispute. Take the time to meet with your attorney if you are entering into OEM, Licensing, distribution, private-labeling or manufacturing agreements. Having an experienced attorney who understands your business and who can set up at the beginning the necessary terms to protect you and to provide for the risks factors that should be included in the deal.
If there is more than one owner of the business a buy sell agreement is always required. Every shareholder or partnership dispute that I have been involved in always starts with my client stating, “You know, my partner and I were best friends in the beginning”. If the business relationship goes awry a Buy Sell Agreement outlines the terms of how one shareholder or partner will buy the other out. A buy sell agreement is always best to be negotiated while individuals are still in the best friend stage. Having a buy sell agreement in place avoids costly litigation. No one cares about a contract until everyone cares about a contract because there’s a problem and the frantic dissection of every sentence ensues. We have to advise clients to address the problems before they exist, lest litigation bring the whole machine to a grinding halt.
To be continued … Next week: Part III: Safe-guard your product
Followed by: Part IV: Choosing your Corporate Counsel
Click here if you missed Part I: Laying a good foundation
Starting a business from scratch is difficult. There is usually not enough money to start it with all the bells and whistles you would like. You are very careful to allocate wisely which dollars will be spent where and maximizing your return for those allocations. Hiring an attorney is usually the last thing on your list. The internet allows us all to have just enough information to be dangerous. The online legal services beckon us with their low cost fees. What people forget is that you are laying a foundation for your business. And your business is only as good as the foundation.
Our view when starting a business is to raise the funds that will be required in the first year for a good attorney and a CPA. An attorney or CPA will be able to advise you as to what type of corporate structure should be chosen for your entity depending on the type of business (manufacturing, distribution, real estate development, investment properties, etc…) you are going into or the industry your business will be in that my cause higher risk and thus the need for more protection from the entity that you form.
A good business attorney will also advise you to search the name and logo of your company. Before you put money into a logo, business cards, letterhead, website, and production of product make sure that another company does not have a similar name or logo that is already registered as a trademark that will force you to cease the use of your name or logo.