Small businesses need three legs, don't saw off the lawyer

It may be tempting to forgo professional legal advice when starting a new business, but it's still a good idea to hire a business attorney

Melanie Stetson Freeman/Staff/File
Realtor Beth Byrne signs papers to refinance the mortgage on her own home with attorney Donna Wolf in Natick, Mass., in this Jan. 2009 file photo. Finding a good lawyer to help with a start-up company is a good idea, too, writes guest blogger Jeff Cornwall.

One of the first bits of wisdom my father shared with me many years ago was that a small business needed "a strong three-legged stool" to support it. The three legs should consist of a strong attorney, a CPA and a business banker.

To save money, many startup entrepreneurs cut corners on legal work. With all the use of do-it-yourself legal websites, many entrepreneurs seem to be questioning whether they need a personal relationship with an attorney.

"Every business is different, and that is equally true for their legal needs," said Chris Sloan, an attorney with the Nashville office of Baker, Donelson, Bearman, Caldwell & Berkowitz. "For the truly simple, small, mom-and- pop types of businesses, you may be OK with a do-it-yourself approach. But if you are expecting a lot of growth, or have partners, an off-the-shelf approach is often a poor fit."

I tell entrepreneurs that when it comes to partnership/shareholder agreements, you can pay your attorney now or pay him a lot more later.
"There's a reason why we call partnership disputes 'business divorces,' " Sloan said. "They can be just about as nasty and emotional at times.
"The best way to avoid that is with an agreement that addresses issues like decision-making, dispute resolution, what happens if someone dies or wants to leave, and how and when to shut or sell the business.

"With a good agreement, you accomplish two things. First, you avoid a dispute down the road, and second, you have a chance to preserve the personal relationships."

Shape the issues

"First, find a business lawyer," Sloan said. "Many lawyers cannot think outside of the law school approach of spotting every issue and addressing it. Those are not business lawyers.

"A good lawyer also has the heart of a teacher; they should be able to explain things in a way that the client can understand them and feels comfortable. How they do this also gives you a good indication of how they will write, how they will negotiate and how they will interact with another party.

"Lastly, remember that lawyers are like doctors; there are many different areas of expertise. Just like you wouldn't go to an internist for open heart surgery, you shouldn't go to a public securities lawyer or a litigator for startup work."

One attorney with whom I worked in my business past used to say that he wanted me to first shape the issues we were working on for him from a business perspective, and then he'd do the lawyering.

Sloan agreed with this advice.

"My job isn't to say, 'Do this. Don't do that.' It's for you to tell me your business objective, and for me to advise you on the different ways to accomplish it and the risks associated with each one."

A strong legal foundation is one of the three legs of the stool supporting a small business. My subsequent columns will examine the other two legs of the stool.

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