Small Business Tips

When does a small business need legal advice?

Stephen Fishman
Tax expert and contributor MileIQ

Lawyers cost money. Often, a lot of money. If you’re starting or running a small business, when is it worth it to pay for legal advice?

Like many things in life, the answer is “it depends.” Some businesses need legal help more than others.

When your small business should seek legal advice

You can do yourself many of the legal or law-related tasks required to start and run a small business. This is easier to do than ever before because a wealth of do-it-yourself legal guidance is available online and through books.

There are also online services that will perform routine legal tasks for you at low cost. These tasks include forming a corporation or doing a trademark search.

Yet, going the do-it-yourself route takes time and effort. You must educate yourself and then apply what you learn. You could be better off spending that time running your business, not learning how to be a lawyer.

Also, do-it-yourselfers can make costly mistakes. Lawyers can help you avoid such mistakes.

Here are some of the times you may need to hire legal help.

Starting your business

You can start a one-person small business without a lawyer. This is especially true if you’re a sole proprietor, as most one-owner businesses are.

When you’re a sole proprietor, you personally own your busienss and all its assets. This means there are few legal formalities you need comply with to get started.

You’ll need to obtain any necessary local or state business licenses. But you can easily do this yourself. It’s just a matter of filling out a few forms and paying fees.

If you want to use a name other than your personal name to identify your business, you’ll need to file a fictitious business name state or similar document. Again, this is not difficult to do yourself.

If you want to limit your personal liability, you may choose to form a one-member limited liability company (LLC) to run your one-owner business. You can easily form a single-member LLC yourself.

Your secretary of state’s website will likely have all the forms you need to complete and file. There are also many online services that will form an LLC for you for a small fee.=

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Do I need legal advice if my business has many owners?

On the other hand, if you’re forming a business with multiple owners, you should obtain a lawyer’s help. Life is always more complicated when more than one person owns and runs a business.

Costly disputes can develop if your business structure and operations are not well thought out.

A lawyer can help you and your co-owners decide how to legally form your business. Your lawyer can also help you and your co-owners decide on such crucial issues as ownership interests, distribution of profits, and what happens if one owner wants to leave.

You’ll normally want to form a multi-member LLC or corporation. This limits your personal liability. A lawyer can draft an LLC operating agreement or corporate bylaws. These will govern the running of your business.

There are “canned” operating agreements and bylaws you can use for this purpose. But you’ll be better off with a custom-drafted agreement prepared by a lawyer addressed to your needs.

Handling intellectual property

Intellectual property is one of the most valuable assets for many businesses. This includes things like software, inventions, and product names and logos. There are three main types of intellectual property:

Trademarks: Trademark law protects things like product or service names and logos. By conducting a thorough trademark search, a lawyer can help you choose a business or product name that will receive the most trademark protection and avoid infringing other trademarks.

Your lawyer can also register your trademark for you. You can do a trademark search and register a trademark yourself, but it is a complex process. You’ll often get better results by hiring an expert. The value of a good trademark can make the fees you pay worth it.

Patents: If you develop a valuable (or potentially valuable) invention you want to patent, it is essential to retain the services of a patent lawyer. He or she can prepare your patent application. Filing a patent application is a complex process usually best left to experts.

Copyrights: Copyright protects works of authorship like software, photos, video and film, writings, artwork, and graphics. You’ll obtain maximum legal protection for such works by registering them with the U.S. Copyright Office.

Fortunately, copyright registration is a much simpler process than registering a trademark or filing a patent. You can do it yourself fairly easily at the Copyright Office website.

Dealing with contracts

There are thousands of free or nearly free sample contracts of all types available online for your use. So why should you ever pay a lawyer for one? Because they may not be any good.

If your business involves providing services to clients, it is a good idea to get a lawyer to prepare a standard contract you can use. Using a custom-drafted agreement insures that it only includes provisions that you need.

Many clients insist you sign contracts they prepare. Such a contract because may contain provisions that are grossly unfair or unnecessary.

If a substantial amount of money is involved, it is wise to get an attorney to review a client’s contract. The same holds true for an office or other business leasees. Commercial leases are often complicated.

Your lawyer can help you negotiate more favorable terms and explain the fine print.

People owe you money

If a client or customer owes you a substantial sum of money, hiring a lawyer to collect can be a good option. Hiring a lawyer shows you’re serious about getting paid. A lawyer can also cost less than turning the debt over to a collection agency, which will take up to 50% of what they collect.

You can handle smaller claims yourself. Every state has a small claims court system used to litigate small legal disputes. These are the way to go to collect smaller debts. One big plus: Most states bar lawyers from small claims court.

You’re getting sued

It’s not uncommon for business owners to get sued sooner or later. Or, instead of a traditional lawsuit, you may have to go through arbitration.

If a substantial amount of money is at stake, or the issues are complex, you’ll need a lawyer to represent you. Small or simple claims you may be able to handle yourself.

Fortunately, business insurance pays attorney fees to defend against many types of claims.

Selling your business

When it comes time to sell or otherwise end your business, a lawyer can help you draft the needed to documents and make sure you comply with all legal requirements.

How to find a lawyer

There are many online directories you can use to find business attorneys. However, you’ll often get better results if you take a personal approach.

Seek lawyer referrals from people in your community who own or operate successful businesses. People who provide services to the business community can also give you good lawyer referrals. For example, speak to your banker, accountant, insurance agent, and real estate broker.

After you get the names of several good prospects, shop around. Most lawyers offer free half-hour or one-hour consultations to meet with potential clients. This is a good way to see if a lawyer is a good fit for you.

Look for experience, personal rapport, and accessibility. And be sure to ask about fees.

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