September 11

5 Key Contract Terms

Do your eyes glaze over when you’re reviewing your company’s contracts with its suppliers or customers? If so, you’re not alone. Contracts can be long, dry documents filled with obscure legal language. In short, they’re no fun to read.

But even if you’ve had your contracts drafted by an attorney (which I recommend), there are a few key terms that you should be sure to understand. These terms can affect your liability under the contract long after both parties have performed their obligations:

February 27

Why Your Growing Business Doesn’t Need to Hire a [Full-Time] Lawyer

As an emerging business, you may not need a full-time lawyer on your payroll, i.e. you probably do not have enough legal issues to keep an attorney busy full time. Instead, what you might need is an attorney “on call.”

An “on call” attorney, otherwise known as an “outside general counsel,” is a lawyer who you engage on a regular basis to consult with about legal issues as they arise. The benefit of establishing a relationship with one attorney to act as your outside general counsel is that the attorney will become knowledgeable about your business and will be able to handle your legal issues with a more complete perspective of your goals. In contrast, an attorney that you call only when you have a fire drill will not have this same perspective and may not be able to help you to put out the fire in the most efficient, least disruptive way.

The advice of good counsel can help you to succeed. An experienced lawyer can (1) help you to organize your company so that you have the greatest flexibility for growth and so that you are attractive to investors and (2) help you avoid many legal pitfalls of everyday operations so that your company can stay on a path to success. As I’ve previously explained, the counsel of a good attorney can help you to lower your risk of being sued.

The key here is a good working relationship. When you are thinking of engaging an outside general counsel, you want to find someone whose judgment you trust. You will be sharing secrets with your attorney, so it’s important that you find an attorney that you like. You want an attorney who believes in you and your vision, and who is willing to make your business a priority.

Engaging an outside general counsel sounds expensive, but it doesn’t have to be. First, you pay for your outside general counsel as you call on him or her for advice. Second, you do not need to hire a $1,000/hour attorney. You need someone who is smart, capable, and eager to work for you.

There are many law firms of all sizes at all price points that provide outside general counsel services. To find the one that is right for your business, you should consider the firm’s accessibility (nearby or offer electronic access to information), experience, and the cost. You want a high value firm, not necessarily a high cost one.

Should you look for a corporate law firm or a litigation firm? This depends on the stage of your business and your goals for your business. A litigator or an attorney with litigation experience may be better at spotting risks than an attorney who is focused on regulatory filings. You want a lawyer who can solve your company’s particular problems when they arise.  That may mean you need a lawyer with access to other lawyers who have special skills if and when you ever need them.

Felicello Law offers outside general counsel services. Please sign up here.

December 8

Why Hiring a Lawyer May Keep You Out of Court

Are you planning to start a new business or introduce a new product or brand to the market? These activities may increase your risk of litigation if you do not carefully consider and plan for the related legal issues, such as the impact of trademark and other intellectual property, contract/regulatory, employee/Fair Labor Standards Act, tax, and antitrust law.  A good attorney can help you to navigate these laws before they cause you legal headaches:

  1.                   Trademark and other IP issues. Conducting a search for intellectual property rights and obtaining the necessary rights or releases before branding your new product is essential. For example, Research in Motion may have avoided the necessity of re-branding its new operating system mid-launch if it had conducted a proper trademark search before committing to a name for the product. Instead, Research in Motion apparently waited until a federal court granted a restraining order against it, preventing it from launching its product with its chosen name.

RIM may have been able to avoid the expense of re-starting a marketing effort in midstream, not to mention the hassle of litigation, if it had discovered BBx before deciding to name its new product BBX.

2.                  Contract/regulatory issues. An attorney can ensure that all of the necessary paperwork has been completed so that you can open your new venture or bring your product to market. For example, you will need to determine the best form of business venture (corporation, LLC, LLP, partnership, S corporation, etc.) and file the necessary paperwork to establish your business venture. If you will be hiring employees, you will need to obtain the necessary insurance as required by your state. You may also need special licenses to operate your business (i.e. a restaurant may need a liquor license). A lawyer can help you complete these tasks so that they are performed properly and you can focus on marketing and developing your business.

3.                  Employee / Fair Labor Standards Act issues. An attorney can evaluate your payroll to determine if you are properly accounting for and paying your attorneys. The Fair Labor Standards Act can be a minefield for business owners of all sizes. The distinctions between Exempt and Non-exempt workers for purposes of who is entitled to mandatory overtime pay (time and a half) are not always obvious. Consulting with an attorney before you make these determinations could save you the considerable expense of litigating a wage and hour case. If you consult with an attorney in good faith and still make a mistake based on the attorney’s incorrect advice, you may also obtain a reduction in any liquidated damages that you owe on the basis that you had consulted an attorney.

4.                  Tax issues. There are many tax issues involved in running a business and selling products. Most businesses are responsible for collecting, documenting, reporting, and submitting sales tax. You will also owe tax on any profits you make from selling your products. If you have employees, you will also owe employee withholding taxes. It is important to set up a system for tax collection and submission before you start selling your products. If you fail to do so, you may owe back taxes and penalties. Many businesses have even been shut down as a result of owing back taxes. For example, see http://www.sj-r.com/business/x1758551811/State-shuts-down-Sammys-until-back-taxes-get-paid and http://www.pittsburghlive.com/x/pittsburghtrib/news/breaking/s_765540.html

 5.                  Antitrust issues. Do you have market power? Are you trying to use your market power to increase market share, increase or profits, or harm your competitors? Do you have a legal duty to keep your product on the market even if you introduce a new product?  Does the agreement you plan to enter unlawfully harm competition? Are you improperly tying the purchase of one product to another? These are all important issues to consider as you move to enter a new market, introduce a new product, or enter an agreement with your competitors. An experienced antitrust attorney can provide you with the necessary guidance to achieve your goals with the least amount of litigation risk.

Opening a new business, entering a new market or developing a new product can be exciting and profitable. But these activities can also open you and your business to the risk of litigation. The earlier in the process that you consult with an attorney, the easier it will be for you to mitigate your risk of litigation.