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Attorneyâs â Who Needs Them?
General Business News
October 2003
Attorneyâs â Who Needs Them?
You might think from the title of this article that we are about to have a lawyer bashing party, but we arenât. No, instead, weâll try to convince you that attorneys can be worth their weights in gold, and itâs not because we are trying to keep them from spreading some of the accountant jokes that have started over the last few years. Years of business experience have convinced us that legal review and advice can save a fortune when it keeps you from avoiding costly litigation.
An ounce of preventionâ¦
Letâs take a look at a âwhat if.â
What if Harry is an employee you want to keep happy, but you arenât certain what else to do besides give him the company. In the middle of the night, you have a brainstorm; youâll give him a bonus. The next day you call Harry in and tell him that you will start a bonus plan just for him and he will be paid 10 percent of any profits his department generates over $1 million. Things are going well and at the end of the year, his department has done well, but according to the auditor, after all expenses are allocated to the various departments, Harryâs department earned only a $900,000 profit. You meet with Harry and tell him the bad news. Harry hits the ceiling because according to his numbers, the department made $2 million. In a meeting with Harry, the auditor explains to Harry that he was only looking at direct departmental costs and not the overhead that is allocated to the department. Harry grumbles and says something unrepeatable about accountants, tenders his resignation, and a week later you receive notice that he is suing you for nonpayment of his bonus.
Would you care to guess who wins the lawsuit? The auditor did everything right and all the allocations of overhead follow normal industry practices and definitions. Janet across the street has the same arrangement with one of her managers and she never has a problem with him. There is, however, one glaring difference between your situation and Janetâs; she put the arrangement in writing and her lawyer reviewed it before everyone signed on the dotted line. Unfortunately you didnât take those steps and when you got to court, the jury sided with Harry. It happens everyday.
Many people we meet these days are justifiably trying to stay profitable by minimizing their expenses. One way to do so is to use your attorney only when absolutely necessary, but many business people have the mistaken idea that they can handle just about anything in their business without outside help. They forget that an ounce of prevention really can be worth a pound of cure.
When should you involve your attorney?
Obviously, you arenât going to turn to an attorney for every decision you make in the normal course of business, but there are several areas you should never skimp on. Contracts for major purchases, building leases, employment contracts, and similar documents should always be reviewed by a competent attorney. You should discuss any major employee policies with your attorney â and accountant â to make sure you donât make an obvious error. Even before you start a business, you should consult an attorney for advice on the best form your business should take from a liability perspective. Terms and conditions printed on your work orders, purchase orders, sales invoices and other standard documents should be reviewed by your attorney. Certain provisions of sales invoices, like when title passes to the customer, should not be left to chance.
Does more than one person own your business? Are you and your wife the owners? Could you benefit from preferences for minority or women owned firms if your wife owned 51% of the company? Whatâs that you say? You didnât even know such preferences existed? While itâs true that your accountant will probably also be able to advise you in some aspects of the proper setup of your partnership or other ownership documents, an attorney should have better insight regarding the legal pitfalls of some provisions that make sense to you.
For instance, say you are happily married and the husband really doesnât want to participate in the business. What happens in the event of a divorce or death? Will your partner really want your husband to step into your place when he knows nothing about the business? Will you want him as a partner in the event you divorce and the property settlement calls for a split of your ownership interest? These are the types of things attorneys see day in and day out. They can help you craft your entityâs ownership documents to avoid some pretty nasty situations.
Establishing a relationship with a good attorney can also be indispensable if action against your company should ever be threatened. Building a good relationship and trust with your attorney will make working with him or her easier when the really tough times hit, and in todayâs environment, your chances of being sued are not miniscule.
So, how do I find a good attorney?
At the risk of upsetting the advertising gurus, your first stop in looking for a good attorney is to talk to a trusted business advisor like a CPA or perhaps your financial advisor if the two arenât one in the same. Often times, you will get the names of several very competent attorneys and have no need to go further. In addition to asking your CPA, you might ask friends or owners of other companies with which you work for the names of local attorneys. Your local Bar Association may also maintain a referral list and, finally, you can look through the Yellow Pages and other advertising outlets.
While we donât mean to disparage advertising in general, the fact is we are all attacked these days by a barrage of advertisements making claims that are absolutely true, but may be misleading at the same time. Additionally, attorneys, like all advertisers, put their best foot forward in their advertisements, but when you meet them, you may find that their personality is one that you are uncomfortable with. On the other hand, if you receive referrals from friends and colleagues who know you, although you may still find you donât like the attorneyâs personality, you are more likely to get an attorney you can work with.
Once you have identified one or several attorneys with whom you feel comfortable, you should set up an appointment to meet and interview them. This is where the rubber meets the road. Ask the prospects about their credentials, specialties, and philosophies regarding client service and advocacy. If you need an attorney for only one specialized project, give your prospects the facts of your situation and find out how they intend to approach your project. If you are looking for an attorney who will be able to advise you on a wide variety of issues, ask about your prospectâs general turnaround time on issues and experience in serving other clients in your industry. Above all, donât be shy about discussing fees and, if possible, an estimate of the cost to you of the entire project.
During the entire interview process, you should keep in mind that this is a person with whom you will work for a potentially long period of time. The attorneyâs demeanor is critical. After all, you will, at times, spend a great deal of time with whomever you choose. During this conversation, you should also ask about the attorneyâs philosophy on referring you to a specialist when a case is one that which involves an issue with which the prospect has no practical experience.
Conclusion
Despite the jokes we all make about lawyers, the fact is they are indispensable in todayâs personal and business climate. Aside from helping extricate you from a jam, a good attorney is a necessary addition to any team of advisors to keep you from making a legal mistake in the first place. If you donât have an attorney for your company or personal needs, we suggest you find one with whom you can relate.
Please keep our troops in your thoughts and prayers and, have a great October.
An ounce of preventionâ¦
Letâs take a look at a âwhat if.â
What if Harry is an employee you want to keep happy, but you arenât certain what else to do besides give him the company. In the middle of the night, you have a brainstorm; youâll give him a bonus. The next day you call Harry in and tell him that you will start a bonus plan just for him and he will be paid 10 percent of any profits his department generates over $1 million. Things are going well and at the end of the year, his department has done well, but according to the auditor, after all expenses are allocated to the various departments, Harryâs department earned only a $900,000 profit. You meet with Harry and tell him the bad news. Harry hits the ceiling because according to his numbers, the department made $2 million. In a meeting with Harry, the auditor explains to Harry that he was only looking at direct departmental costs and not the overhead that is allocated to the department. Harry grumbles and says something unrepeatable about accountants, tenders his resignation, and a week later you receive notice that he is suing you for nonpayment of his bonus.
Would you care to guess who wins the lawsuit? The auditor did everything right and all the allocations of overhead follow normal industry practices and definitions. Janet across the street has the same arrangement with one of her managers and she never has a problem with him. There is, however, one glaring difference between your situation and Janetâs; she put the arrangement in writing and her lawyer reviewed it before everyone signed on the dotted line. Unfortunately you didnât take those steps and when you got to court, the jury sided with Harry. It happens everyday.
Many people we meet these days are justifiably trying to stay profitable by minimizing their expenses. One way to do so is to use your attorney only when absolutely necessary, but many business people have the mistaken idea that they can handle just about anything in their business without outside help. They forget that an ounce of prevention really can be worth a pound of cure.
When should you involve your attorney?
Obviously, you arenât going to turn to an attorney for every decision you make in the normal course of business, but there are several areas you should never skimp on. Contracts for major purchases, building leases, employment contracts, and similar documents should always be reviewed by a competent attorney. You should discuss any major employee policies with your attorney â and accountant â to make sure you donât make an obvious error. Even before you start a business, you should consult an attorney for advice on the best form your business should take from a liability perspective. Terms and conditions printed on your work orders, purchase orders, sales invoices and other standard documents should be reviewed by your attorney. Certain provisions of sales invoices, like when title passes to the customer, should not be left to chance.
Does more than one person own your business? Are you and your wife the owners? Could you benefit from preferences for minority or women owned firms if your wife owned 51% of the company? Whatâs that you say? You didnât even know such preferences existed? While itâs true that your accountant will probably also be able to advise you in some aspects of the proper setup of your partnership or other ownership documents, an attorney should have better insight regarding the legal pitfalls of some provisions that make sense to you.
For instance, say you are happily married and the husband really doesnât want to participate in the business. What happens in the event of a divorce or death? Will your partner really want your husband to step into your place when he knows nothing about the business? Will you want him as a partner in the event you divorce and the property settlement calls for a split of your ownership interest? These are the types of things attorneys see day in and day out. They can help you craft your entityâs ownership documents to avoid some pretty nasty situations.
Establishing a relationship with a good attorney can also be indispensable if action against your company should ever be threatened. Building a good relationship and trust with your attorney will make working with him or her easier when the really tough times hit, and in todayâs environment, your chances of being sued are not miniscule.
So, how do I find a good attorney?
At the risk of upsetting the advertising gurus, your first stop in looking for a good attorney is to talk to a trusted business advisor like a CPA or perhaps your financial advisor if the two arenât one in the same. Often times, you will get the names of several very competent attorneys and have no need to go further. In addition to asking your CPA, you might ask friends or owners of other companies with which you work for the names of local attorneys. Your local Bar Association may also maintain a referral list and, finally, you can look through the Yellow Pages and other advertising outlets.
While we donât mean to disparage advertising in general, the fact is we are all attacked these days by a barrage of advertisements making claims that are absolutely true, but may be misleading at the same time. Additionally, attorneys, like all advertisers, put their best foot forward in their advertisements, but when you meet them, you may find that their personality is one that you are uncomfortable with. On the other hand, if you receive referrals from friends and colleagues who know you, although you may still find you donât like the attorneyâs personality, you are more likely to get an attorney you can work with.
Once you have identified one or several attorneys with whom you feel comfortable, you should set up an appointment to meet and interview them. This is where the rubber meets the road. Ask the prospects about their credentials, specialties, and philosophies regarding client service and advocacy. If you need an attorney for only one specialized project, give your prospects the facts of your situation and find out how they intend to approach your project. If you are looking for an attorney who will be able to advise you on a wide variety of issues, ask about your prospectâs general turnaround time on issues and experience in serving other clients in your industry. Above all, donât be shy about discussing fees and, if possible, an estimate of the cost to you of the entire project.
During the entire interview process, you should keep in mind that this is a person with whom you will work for a potentially long period of time. The attorneyâs demeanor is critical. After all, you will, at times, spend a great deal of time with whomever you choose. During this conversation, you should also ask about the attorneyâs philosophy on referring you to a specialist when a case is one that which involves an issue with which the prospect has no practical experience.
Conclusion
Despite the jokes we all make about lawyers, the fact is they are indispensable in todayâs personal and business climate. Aside from helping extricate you from a jam, a good attorney is a necessary addition to any team of advisors to keep you from making a legal mistake in the first place. If you donât have an attorney for your company or personal needs, we suggest you find one with whom you can relate.
Please keep our troops in your thoughts and prayers and, have a great October.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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