The benefits of competent legal counsel to a business may seem difficult to quantify, but the simple truth is that businesses which utilize attorneys are better positioned for long-term success. An effective lawyer will add value to a business – right now – regardless of whether the company is a small start-up or established industry leader. This added value comes in many forms, including capital raises, increased revenues from asset and brand protection, and the avoidance of liabilities and other costs.
Business Formations and Corporate Governance
Engaging a business attorney from the beginning of a new venture’s existence will not only help identify an optimal structure unique to that particular business, but will also help minimize risks. Remember that one of the primary purposes of forming a business is protection from individual liability. In other words, if used correctly, the “corporate veil” should protect individual members/shareholders from personal liability for the obligations of the business (with exceptions like fraud and self-dealing where the corporate veil may be “pierced”).
Of course, a corporation with many shareholders faces different obstacles than a small limited liability company (“LLC”) with only a few members, so a legal consultation is usually necessary to determine the best fit for a particular business.
That being said, even closely held small businesses need to carefully delineate the rights and responsibilities of members/shareholders, as well as those managing the day-to-day operations of the business. Indeed, many disputes amongst business owners arise out of dissatisfaction with the day-to-day manager, who may be more closely aligned with one of the members/shareholders than others. Problems like this may be avoided with clear language in an operating agreement detailing the ways that a manager can be disciplined or fired.
A sufficient operating agreement will also explain the processes and rules for business activities like purchases from vendors, entering into contracts on behalf of the company, and selling assets or disbursing company funds. While every business is different, some of the more routine functions like paying an electric bill are typically left to the discretion of the day-to-day manager, other functions, like selling real estate, may require a resolution (like a written agreement) of the shareholders/members, board meeting, and/or vote of some kind (majority or unanimous).
Once a new venture is formed, it is always prudent for the business to closely monitor its own corporate governance through the use of legal counsel. Ideally, this will make sure that rules are actually being followed. If rules are being broken, the operating agreement should prescribe remedies to those being harmed by the corporate misconduct.
Intellectual Property Protection
Frequently, the most valuable asset owned by a company is its brand and intellectual property. Protectable intellectual property can be anything from the name of the business and its products, to “trade dress,” like the visual characteristics of a product label or store. It should logically follow that intellectual property protection, such as trademark registrations, are a no-brainer for these types of businesses.
Too many businesses, however, will sit back and do nothing while the competition registers for similar trademarks, or even blatantly steals or mimics designs (think packaging, labels, or interior design of physical stores). On the other hand, some new businesses may prematurely jump into a space without realizing that their product infringes upon the intellectual property rights of another business, exposing themselves to liability, especially if the manufacturing process has already begun.
Businesses in these spaces that sell products online or in-stores should consult with an attorney to discuss brand protection strategies. One way to do this is by monitoring competitors or other businesses who may register for similar marks, so that a timely Opposition can be filed before the Trademark Trials and Appeals Board, the federal body responsible for hearing and deciding certain trademark disputes.
If trademark infringement is willful, deceptive, and/or especially unfair, the damaged business may be entitled to financial compensation via a lawsuit. Some of the weapons that lawyers can rely upon in such cases are the federal Lanham Act, which provides remedies for Trade Dress and Trademark Infringement, or state statutes like Florida’s Deceptive and Unfair Trade Practices Act and Trademark Protection Statutes.
General Counsel Services and Litigation (Avoidance)
As explained in the intellectual property section above, there are instances when a business or business stakeholder may be forced to file a lawsuit (e.g., to protect its brand or stop illegal company or employee activities), however, an effective business attorney may add more value to a business by minimizing risk and avoiding lawsuits by resolving them pre-suit or delegating the costly defense to an insurer. One of the most straightforward examples is managing the company’s insurance coverage and serving as a liaison between the company and insurer as “coverage counsel.”
Most businesses are better off with some form of insurance coverage to protect against high-exposure events, like an employee getting into a car accident in a company vehicle, an employee making claims of harassment or discrimination, or allegations of intellectual property infringement. A lawyer who is skilled and experienced at dealing with insurance companies can manage this process, from selecting the right insurance policy, to communicating and negotiating insurance company (which may attempt to avoid covering and defending the claim by asserting coverage exclusions).
Another example where an experienced attorney can develop a cost-saving approach include disgruntled former employees interfering with existing customer relationships or stealing trade secrets. These disputes can get messy, expensive, and it is enviable to have an attorney on retainer who is equipped to resolve them prior to litigation. Indeed, a well drafted non-compete or non-disclosure agreement can support early resolutions of such claims. Other areas where attorneys, like those at Salomon Smith PLLC can help businesses are: employment agreements, hold harmless agreements, consulting agreements, sales representative agreements, independent contractor agreements, privacy policies, and terms of service agreements.
Litigation should always be a tool of last resort given the high costs and unpredictability associated with navigating the court system. Engaging legal counsel before any issues arise will put the business in a better position to resolve claims before they reach the point of litigation, when costs may exponentially increase. That being said, your corporate counsel should be well-versed in litigation and recognize when the appropriate time to be aggressive and on the offensive.
Daniel S. Smith is the Founding Attorney of Salomon Smith PLLC, a full-service law firm assisting businesses of all sizes throughout Florida. He can be reached at daniel@salomonsmith.com.