Sunday, January 24, 2010

Does Your Business Need a Legal Checkup?

by John L. Watkins

Does your business need a legal checkup? As previously discussed, the nearly universal rule is that it is almost always less expensive to resolve a legal issue early on – such as through a proper contract prepared with professional assistance – rather than trying to fix the issue later, such as through litigation.

Unfortunately, many businesses do not seek legal advice until it is too late for an easy resolution. If your company does not have an in-house lawyer, or if it does not have a regular outside attorney it regularly consults regarding its legal affairs, it may be time for a legal checkup.

Here are a few of the items that should be considered during a legal checkup:

  • Has your business properly maintained its registration with the secretary of state or other authorities? It is surprising how many companies fail to maintain their annual registration and have been administratively dissolved. The result? No corporate shield against liabilities. Most of the time, reinstatement is possible, but you will need to act quickly.

  • Does your business maintain proper corporate or company records? Does it have corporate minutes, minutes of shareholders' meetings, or resolutions in lieu of meetings? Many businesses fail to maintain these basic documents, which again places the corporate liability shield at risk.

  • Does your business properly maintain separate financial and other internal records? Are loans from shareholders or members properly documented? Do you have more than one company, but their records are intermingled? Are proper financial records kept? Again, the failure to maintain and document separation of company business from personal business, or the business of other companies can place the liability shield at risk.

  • Does your business properly document its contracts? Does your business have contracts, or at least terms and conditions, for every transaction? Do these documents protect your company against making unintended warranties and other consequences? Have the terms and conditions been professionally prepared? Have they been reviewed recently?

  • Does your business have procedures in place for handling and documenting potential claims? Are potential claims reported to your insurance company? Unfortunately, many insurers seem to be in the business of denying claims based on any conceivable basis. If you do not comply with notice provisions in your insurance policies – which can sometimes require more than notice of just lawsuits and formal claims – you may be taking an unnecessary risk.

  • Does your business have in place procedures for protecting confidential information and trade secrets? This concern applies not only to your own confidential information, but confidential information of other companies (customers and suppliers are possibilities). Are employees who handle the information subject to non-disclosure agreements? Have the non-disclosure agreements been professionally prepared? Have the non-disclosure agreements been reviewed recently?

  • Do you have other appropriate agreements with key employees? Do you have covenants not to compete? If so, were the covenants not to compete professionally prepared? Have the covenants been reviewed recently? In Georgia, covenants not to compete present unique issues. How about covenants not to solicit your customers if they leave?

  • Do you have procedures in place to comply with legal obligations regarding employment? Do you have a company handbook? Do you have procedures for dealing with employee complaints?

Please note that this is not intended to be a complete list. There are other issues that apply generally, and many others that may apply to your company's potential circumstances.

How do you have a legal checkup? Find a good business attorney in your area and schedule an appointment. Expect to spend some money to have it done right. Although not an insurance policy or a guarantee, a legal checkup will probably save you large amounts of money in the future.

Sunday, January 17, 2010

Legal Remodeling Can Be Expensive

Have you ever heard a realtor refer to a house as a “tear down”? Tear downs are typically old, small, and often run-down houses on nice lots. For the typical tear down, the cost of remodeling and expanding the old house, replacing the leaky roof, replacing the inefficient furnace, adding air conditioning, and renovating the 1950s-era kitchen and single bathroom are just not worth it. Instead, it just makes more sense to bulldoze the old place and build a completely new house to the buyer’s specifications.

Clients bring me projects all the time that will either require legal remodeling or a tear down. Here is a typical scenario: The client begins discussion of a business transaction with another company. The client chooses not to involve a lawyer until after the business deal is struck. The client has often been presented with a draft contract from the other side. The client may already have gone back to the other side with the client’s own revisions. Finally, it dawns on the client that this is a serious transaction and that the document should be reviewed by a lawyer. That is when they call.

When the client emails me the contract or brings it by the office, the client will often say: “I think we have this one pretty much done. I just want to make sure it is generally OK and there are no legal landmines in it. Just take a quick look and get back to me.”

A quick look usually determines that the document is an unmitigated disaster. If the document has been prepared by the other side’s legal counsel, every term will be skewed to the other party’s benefit. If the document is “home made,” or written by a person with no legal training (whether by the client or someone with the other party), it will almost always be a mishmash of undefined terms, incomplete thoughts, and key omissions. I have literally seen supposed sales contracts that omit what the seller is to sell and the buyer is to buy.

There has been more than one occasion when, after reviewing one of these Frankenstein’s monsters, I have had to ask the client to begin at the beginning and tell me as simply as possible what the business transaction is supposed to be. More often, however, I have to tell the client that the document is a disaster and that the preferred approach would be a legal tear down: Trash the document and start on a clean sheet of paper.

Unfortunately, many clients seem unwilling to take this advice. If the document was prepared by the other side, they are concerned that submitting a new document will be perceived as an insult or will derail completing the deal. If the client prepared the document, they seem to take an ownership interest in defending the document – “Well, I don’t think it’s nearly as bad as you say" – rather than getting it right.

And so the legal remodeling process begins, often with the instruction to make “the minimum changes necessary changes for it to be acceptable.” There are a number of expressions that apply here. One of my late mother’s favorites was “you can’t make a silk purse out of a sow’s ear.” Although we do the best we can under the circumstances, the result is usually just what the client ordered: Minimally acceptable, but far from optimal.

In addition to ending up with a less than optimal document, legal remodeling usually costs just as much, if not more than a tear down. Starting on a clean sheet of paper almost always results in a better result.

Although a tear down is usually preferable to legal remodeling, it is still not optimal. In the scenario set forth in this post, the tear down still occurs after the client and the other party have cut the basic business deal. Business lawyers are used optimally when they are involved early in the process, and certainly before the key terms are struck. Lawyers can provide valuable input on how the transaction might best be structured. Lawyers can also identify key terms and conditions that should be included to protect the client’s interests. Lawyers can also advise the client on whether terms proposed by the other side are carry unanticipated risks.

Again, the irony is that involving a lawyer from the beginning and doing the transaction correctly will probably be no more expensive than either a last minute tear down or a remodeling project. All of this simply reinforces the universal rule that it is almost always more efficient and less expensive to involve a lawyer earlier in the process than later.

Saturday, January 9, 2010

Top Ten Ways to Decrease Costs in Using a Business Attorney by Guest Contributor Jake ("The Snake") Flounder, III

Introduction by John L. Watkins

The arrival of a New Year always seems to bring -- in addition to New Year’s resolutions -- a plethora of top ten lists. As many of you know, our blog has often shared our experiences in how important it is to involve your business attorney or business litigation attorney early on in the process, and to work closely with your attorney through completion.

Apparently, at least one of our readers has a different view, and, in the interest of providing equal time to differing views, and because I have nothing better to post, we offer the following post authored by guest contributor Jake (“The Snake”) Flounder, III on his Top Ten Ways to Decrease Costs in Using a Business Attorney.

Jake has run a number of businesses, including “TunaFrutti,” which offered franchises for combination sushi and ice cream shops, “Jake’s Arctic Golf Adventures,” which offered golf tours to Greenland, Iceland and Siberia, and “Ski Pine Mountain,” a resort which sought to bring alpine skiing adventures middle Georgia. Jake is no longer involved in these enterprises and is now available to bring his Elvis tribute show to your next birthday or holiday party, or other event. I should mention that Jake’s opinions are not necessarily shared by me, the firm, or the firm’s other attorneys. So now, for a different perspective, on to Jake:

10. Do it yourself whenever possible. Just as the case with wiring or running the gas lines in your home, you can save a lot of money with attorneys by doing it yourself. It’s this simple: If you don’t call them, they can’t charge you. And forget that “universal rule” stuff about how it’s always more expensive to clean up a home made legal issue on the back end than using a lawyer to do it right on the front end: That’s all just lawyer talk to drive up fees.

9. Have your assistant check the Internet for a form. Let’s face it, the Internet saves money. I did all of my shopping on eBay this year, and it turned out great, well except for my wife and mom not receiving their presents. Face it, legal services are commodities. The law from state to state is the same, and different circumstances never make a difference. In short, lawyers and legal services in general are all the same. One is as good as another, and a form on the Internet is bound to be good. So long as the form contains sufficient use of words and phrases such as “whereas,” “party of the first part,” and “hereinafterbelow,” you can be sure it is high quality and suitable for any legal needs. Forget those horror stories lawyers tell about Internet forms. That’s just marketing.

8. Don’t pay your lawyer’s bill on time. Never pay your lawyer’s bill on time. First, even though they have staff and rent to pay, they don’t need the money. Second, if you don’t pay them on time, they will be more eager to do the next assignment for you in the hope you will finally pay your first bill. Think about your own experience: Don’t you always treat your worst customers with special attention?

7. If you have to use one, call at the last minute. If you’ve followed the steps above, it is very possible you will never need a business lawyer, well, unless all that marketing stuff they say is true. But we know that is all bunk and I digress. However, if you simply cannot avoid using an attorney, be sure to call at the absolute last possible moment. 5:00 p.m. on Friday is good, and 5:45 p.m. is even better. Face it, most of these guys charge by the hour, and, if you don’t give them any time, they can’t charge you as much. Don’t believe all that junk they tell you about needing to structure and tailor the document for your needs, or to gather the facts about that lawsuit that needs to be answered on Monday. And if you can make a lawyer work through the weekend or miss his spouse’s birthday party or his kid’s little league game, you can be sure you will never be forgotten.

6. Demand that your work take priority over every other client. This goes hand in hand with the “call at the last minute” strategy. If you call at the last minute, you are going to have to make it clear that your work needs to be done before anyone else’s. You know what they say: “The squeaky wheel gets the grease,” and, as the late-paying, last minute, overbearing client, you are definitely going to be the squeaky wheel.

5. Cut the deal yourself and then tell the attorney to write it up. A lot of lawyers want to tell you they can help you structure and negotiate the deal to your company’s advantage. Even if a lawyer has handled many similar transactions, don’t ever believe that. Remember, you are the client and you know best. Besides, lawyers charge you for all that stuff. So just cut the deal yourself, and have them write it up with some of their legal mumbo jumbo. Not that it matters anyway.

4. Don’t let your attorney’s advice stand in the way of getting the deal done. Lawyers can be deal killers. Don’t let this happen to you. Ignore their comments about the merits of the deal. Don’t believe it when they tell you there is a problem with title or a claim against the company you are buying that you didn't know about. Don’t let them talk about buying assets when the other side is selling stock and you want to buy. Just tell the lawyer to shut up and finish the paperwork.

3. Don’t tell your attorney all the facts. This is a subtle tip, but it is very important. Lawyers always want to know all the facts. They say this will help them advise you and represent you in connection with the deal or the lawsuit. Don’t let a lawyer lead you down this path! First, if you tell them everything, it will take more time and, with lawyers, time is money. Second, there are certain things that should just be left unsaid. Talking about them could lead the lawyer to ask questions, and that takes money. And those untold facts never come back to haunt you, anyway, at least so far as I know.

2. Don’t return calls and provide input. Lawyers always want more information. If you return their calls and provide input, it just costs money. Lawyers claim they are professionals. Well, if they are professionals, make them prove it. They should know how to do this without bothering you or knowing what you want or are trying to achieve.

1. Lie. Sometimes, despite all your efforts and even after following the nine prior tips, lawyers will ask you a question that you just do not like or want to answer. This is particularly true if you are in litigation and the other side is asking pesky questions. My advice: Just say whatever you think the most helpful answer should be. It doesn't need to be the truth. Chances are, no one will ever find out. Sure, I did this in the TunaFrutti franchisee litigation and somehow the other side found out, which led to something called a “default judgment.” But that doesn’t mean my advice is wrong.

Note and Disclaimer: This post is a parody and Jake is not a real person. If you did not realize this until reading the preceding sentence, you probably need more help than even a great business attorney can provide.