If you’re an entrepreneur, one of the many questions you may be facing is whether you need a business lawyer. You may think the hourly rate for a lawyer isn’t worth the cost when you are still just starting off and may think that it’s less expensive not to hire one. However, if you wait until a case goes to court, it can often be too late. Court fees for litigation that could easily have been avoided or mediated can be a big hit for a small business
While hourly legal fees can range from $150 per hour for a junior lawyer to staggering $1,000 per hour for a senior partner with a large firm, the median price of a business lawsuit can range from $54,000 for a liability suit to $91,000 for a contract dispute.
The likelihood of a lawsuit is always present for a small business, and it is better to be prepared. Of the roughly 20 million civil cases filed yearly in the United States, more than half are contract or employment disputes aimed at businesses.
Lawyers can be a great resource for tasks to help prevent litigation. They can help with tasks such as writing or reviewing contracts, handling employment issues and raising money.
You won’t need to hire a lawyer for every situation. However, it can be best to hire one before you need one in court. They will be with you every step of the way, just a phone call away when you need guidance, and they’ll already be familiar with your business should an issue arise. And regarding your pocketbook, there is good news: more services are available to help you save money and find a lawyer on a budget.
What issues can I handle on my own?
Not every issue will require a small business lawyer, or be worth the small business lawyer cost. There are certain things you can do on your own, including:
Deciding on a business name or domain name
Writing a business plan
Filing business formation papers: However, when writing the Articles of Incorporation, Corporate bylaws, or Operating Agreement, it is wise to talk to an attorney as they will be able to instruct you on the best clauses to include and word everything properly. In the long run, even if you’re currently a company of one, consulting a lawyer can help you prevent conflicts down the road and give you added credibility in the eyes of the law. If you are planning on taking on investors or issue stock, or if you will be operating in multiple states, you may also benefit by spending some time with a business attorney.
Getting an employer identification number (EIN): This is free from the IRS and required before you can hire any employees or file your taxes.
Obtaining a business license: Although, an attorney could still be helpful in making sure you have everything your locality requires, especially if there are complex or unique zoning laws in your area, you can likely take care of this yourself.
Applying for a business loan: Although it’s important to note that most banks will request a copy of your Operating Agreement, if you’re a Limited Liability Company, before they will allow you to open a business account or take out a line of credit. You may want a lawyer’s help with drafting this document, just to make sure you’ve covered everything banks will look for.
Balancing your books or filing tax returns: If you want legal advice on your business’s tax situation or tax consequences, you should hire a commercial tax attorney, but generally, your accountant will be able to handle this.
Interviewing and hiring employees: You may still want to initially consult with an attorney to make sure you are well versed in federal and state anti-discrimination laws for hiring employees. Employment law is constantly shifting and asking the wrong question at an interview could have consequences you’re not aware of. Further, you may want to have an NDA or pre-interview contract in place with candidates. This would be best handled by a lawyer.
Writing contracts: Contract templates are available online. However, there are many instances where it can be a mistake to fill these out yourself. Keep in mind that standard forms often won’t hold up in court. The cliche - better to be safe than sorry - may apply here.
Creating buy-sell agreements: It can be helpful to establish these parameters beforehand. Be sure to include a business valuation clause for determining the value of the business.
If you have the funding on hand for an attorney, as you can see there are many items on this list where you can still benefit from the help of a business lawyer, even when it’s not absolutely necessary. While trying to do everything yourself may seem less expensive, an ounce of prevention can go a long way.
When should I hire a small business lawyer?
Small business lawyers are great to have throughout the life of your company, but can be especially helpful at the outset. When you decide on your business structure, be it a sole proprietorship, partnership, corporation, or LLC, a lawyer can help provide peace of mind that all the necessary paperwork is filed and your initial contracts and agreement are all properly drafted.
A lot of the legal issues companies encounter down the line are due to mistakes made in the setup process of their legal business entity. Experienced lawyers will be able to prevent many costly suits and save time that would be spent meditating by ensuring your small business is protected from the start.
Here are some situations when you would want to hire a lawyer:
These make up 60% of the 20 million civil suits filed every year. The median judgment awarded for contract cases is $35,000 compensatory and $68,000 punitively as cited by the Bureau of Justice Statistics study. Lawyers can also prevent you from breaking laws, or falling into these other pitfalls. They could help you negotiate favourable contracts and ensure you understand all the fine print. Also, they can help you prepare contracts, invoices and agreements in writing. You should never rely on a verbal agreement, even with friends and family.
Employee disputes are a major source of small business lawsuits. Tort cases, which include damages for things like employee discrimination, slip and fall cases, or even wrongful death suits, make up another 11% of civil cases. As a business’s workforce grows larger, business attorneys often step in to help with labor law compliance and to resolve wrongful termination lawsuits.
Once an employee files a lawsuit, often all you can do is hire legal defense. Many times these cases can be avoided by hiring a lawyer beforehand to ensure you’re complying with laws and protecting your assets. For example, if you ask an employee whether they were pregnant or planning on having kids soon when interviewing them, you have opened yourself up to a lawsuit for gender discrimination you could have avoided with proper knowledge of the law. If you will be hiring employees, you may want to have a consultation with a lawyer first to be clear on the proper procedures. Inevitably, some employees will leave the company, and it's important to protect your business against their taking their knowledge of trade secrets with them over to the competition.
Lawyers can help you decide which type of business structure is most advantageous to you, as well as help you prepare the necessary paperwork to file your business properly.
Tax and Licenses
A tax attorney can help you understand the laws associated with and the implications of your business transactions. They will also be able to advise on with tax status is most advantageous for your small business, especially when deciding between C Corp and S Corp designation.
Dealing with suppliers, customers, or the public in general
For example, if you have a brand, you will need to take the necessary steps to protect your trademark and intellectual property. If you provide and kind of good or service, you will likely need some disclaimers, Terms of Service, and a Privacy Policies developed for your website, and your lawyer will be the best person to ensure all of these are maintained properly as laws change.
When you start a business, you might not be thinking about what to do if you want to sell. But you want to leave yourself open to long term profits for your labor. A lawyer can help you when you consider buying or selling company assets, or one of the principles leaves the business. They can also help determine exit strategies and succession for cofounders.
Yes, it’s true that legal fees can be a bit hefty and this can be a burden on small businesses. This is especially true at the very start, before you’ve likely even started turning a profit. However, the beginning of your company can be a very good time to hire on a business lawyer, as they can help you to ensure everything is set up correctly.
Having a strong foundation at the outset of your business will set you up for success later on. Having properly drafted policies and contracts will also give your new business an air of credibility, which will help you build up a good reputation in your business community. Having unclear contracts or cookie-cutter ones you download from the web can have the opposite effect. News travels fast in the business world and as a new small business, a bad reputation can be hard to live down.
Hiring on a small business lawyer could give yourself peace of mind and the ability to focus on growing your small business, rather than worrying about every form to cross your desk.