When to Hire Lawyers
Most people only think about hiring an attorney when they get into trouble or are threatened with (or need to threaten) a lawsuit. However, talking to an attorney early in your business venture can save you lots of time, headaches, and cost later.
How do you decide when to hire a lawyer while living on a limited budget? Each situation is different, but here are some helpful tips on when you should consider talking to an attorney:
- When safety is an issue.
- When the amount of money you can earn from the transaction is substantial.
- When your exposure to loss is substantial.
- If the “small” transaction will be repeated enough times to constitute a significant amount of money for your business, or when the transaction represents the core of your business model.
- When individual people (versus other businesses) will be buying your product/service.
Most small businesses owners are focused on getting their product or service to market, and generating sales as quickly as possible. Finding competent legal counsel is not usually on the top of a new business owner’s list of things to do. However, hiring an attorney early can be a wise decision.
Ideally, all new business owners would look for an attorney to advise them immediately upon registering their business with the Secretary of State. Realistically, cost prevents some new businesses from employing counsel to do all those things. Here is an expanded discussion from the list above about when you should considering hiring an attorney:
1. When safety is an issue. If your business could potentially cause injury to people, things, or property, you should hire an attorney before selling your product/service. Not only will you want to ensure your product/service does not harm others, but injuring another can result in direct catastrophic liability to you (even if you are incorporated), and could even lead to criminal prosecution. It simply makes sense to retain counsel when safety can be at issue. It is also wise to obtain an appropriate insurance policy, and your insurer can assist you in evaluating the safety risk of your business.
2. When the amount of money you can earn from the transaction is substantial, either in the amount of dollars or the percentage of business it represents. Few business owners ever believe their biggest transactions could result in loss or failure, especially if it is with someone they like or trust. However, the big transactions are the ones that you have the most to lose, and thus represent one of the most important times you should retain qualified counsel. Sometimes these big transactions are for the sale of good/services, and sometimes they are for large investments in resources or for property leases. Getting into a large transaction is usually a whole lot easier and cheaper than hiring counsel to get out of it (or keeping the other party in it).
3. When your exposure to loss is substantial, either in dollars or in the likelihood of business failure with the loss. Another factor to consider in thinking about hiring counsel is when money is tight is to look at your total exposure if the deal fails. If your greatest potential loss in the event the deal falls through is significant, then hiring counsel to help with the transaction is probably a wise idea. This is true whether the amount of money you could lose is great, or if the loss would represent a large percentage of your business. For new businesses, the risk here is usually located in their real estate lease or with startup loans. A real estate lease means considerable financial exposure because a large amount of money will be paid over a long period of time under a sizable number of conditions and obligations. It can also contain dangerous personal guarantees that you will want reviewed, as can personal guarantees on loans. Some loan contracts also contain cognovits, which are very risky clauses for borrowers.
4. If the “small” transaction you are contemplating will be repeated enough times to constitute a significant amount of money for your business, or when the transaction represents the core of your business model. If your business model is selling something illegal in your area, you would probably benefit from knowing that early in your business’ life. Avoiding the problematic aspects of your business will enable you to avoid loss as well as avoid the potential for criminal prosecution. This applies to obviously illegal business models, but you can run also afoul of the law easily and without knowing it.
This law firm regularly sued a national fitness company because its consumer contracts contained five words that were not a large enough font. The company used the same form for most new members, so their mistake was repeated hundreds or thousands of times. Their core business was being challenged not by the activity offered, but by the form they used to sell it. Thus, if your business model requires the use of repetitious transactions, and you have sufficient assets/income to pay $20,000 lawsuit judgment, then you should have your business model reviewed by the lawyers at Doucet & Associates.
5. When end consumers will be buying your product/service for personal, household, or family purposes. Along the same lines as number 4, you will not know if your business needs to comply with state or federal consumer laws unless you talk with a qualified attorney. If your business model sells goods or services that are used by people for household, family, or personal purposes, then you should talk with qualified counsel. Consumer laws cover every kind of supplier you can imagine, including car dealers, door-to-door salesman, debt collectors, retail stores, telesales, tax preparers, and others. These kinds of laws almost always include provisions where you must pay for the cost of the consumer’s lawyer if they sue you and win. Thus, unless you are judgment proof and everyone knows it, talk to a lawyer before selling to consumers.
Call the small business lawyers at Doucet & Associates today at (614) 944-5219 to discuss your small business legal needs. Or contact a lawyer by sending us a message online by clicking here.