When Do I Need A Business Lawyer For My Small Business?
One of the questions small business owners often face is, "Do I need to hire a lawyer for this?" In this article, we'll take a brief look at some common situations that typically do and don’t require legal counsel.
Of course, because every case is different, this can't be an exhaustive or all-encompassing discussion of when you do and don’t need a lawyer. But we hope that this article will provide some useful information and some guideposts to how to think about the question, “When do I need a lawyer for my business?”
In addressing this question, it’s helpful to visualize there being a “spectrum” or “sliding scale.” Some things are absolutely best for you, the person running the business, to handle yourself. These are at one extreme of the spectrum. Some things are absolutely not suited to a do-it-yourself approach; those are at the other extreme. And many things fall somewhere in the middle.
DEFINITELY HIRE A LAWYER:
There are some situations where the answer is a straightforward, “yes, you need to hire a lawyer.” In my view, active litigation is first among these. If your business is being sued, you should hire an attorney. If you need to sue someone, you should hire an attorney. This is especially true if your business is a corporation or LLC, because in California, corporations and LLCs cannot represent themselves in court. They are not allowed to. So, if your corporation is being sued and is without counsel, the likely result is a default judgment against the company. Not good. Even if you are a sole proprietor, the stakes are often so high in litigation that you would be better advised to spend the money on legal counsel than to entrust your business’s assets and future to your own “DIY” ability.
Likewise, if your business happens to be investigated by local, state, or federal entities (for example, if an employee complains to the DFEH or EEOC about discrimination), it would be wise to retain a business lawyer. An ounce of prevention can be worth a pound of cure. I once represented the owner of a business that was under investigation by a state regulatory agency for failure to file required documents and related issues that could potentially lead to criminal charges. Unfortunately, the owner thought he could work everything out himself by talking with the police and that that would save him money by not paying me, his lawyer, “just to negotiate.” Remember the old Miranda warning: “Anything you say can and will be used against you.” Guess who wasn’t able to “just negotiate” a resolution to his regulatory woes? If you find yourself in a similar situation, legal counsel can go a long way toward preventing future problems.
DO IT YOURSELF:
Let’s jump to the other side of the spectrum. This may not be great salesmanship, but let’s face it: There are some things you probably shouldn’t hire a lawyer for. In Curb Your Enthusiasm, the classic TV comedy, there was a scene where Larry David’s lawyer reads a script for him, criticizes it, and sends poor Larry an invoice for her services. (She spent hours reading the script, after all!) This is a good example of something you should keep in your own hands. Your personal, creative product is not an appropriate subject to pay a lawyer to offer his or her opinions on.
OK – that one was pretty obvious, right? But the general idea that you should only pay a lawyer for legal work is worth keeping in mind. It’s probably not worth it to pay a lawyer to opine on purely business matters, unrelated to legal issues, that are outside of the lawyer’s area of expertise. For example, if you were to ask me how much you should charge for a certain product or service, or whether particular terms in a contract are a good business idea, or what level of insurance you should carry and what an appropriate deductible would be, I (or any other lawyer) would likely be in no better a position than you to opine on those questions. (Of course, it makes sense to ask a lawyer about the legal implications of a contract term.) Business decisions are best left to the business, unless there are legal issues or implications. Similarly, tax and/or accounting issues are probably best left to a tax professional or CPA.
Also, you can and should document important items yourself as best you can. If you’re anticipating a conflict with a landlord, it behooves you to communicate in writing, keep diligent notes, and make sure your documents (e.g., lease agreement, notices, receipts, etc.) are available and organized. Keeping records of your business dealings is just good practice. And, if you do end up in court, having thorough and well-organized documents will make your lawyer’s job easier, make success more likely, and may even save you money on fees because your lawyer won’t have to spend hours collecting and organizing documents himself.
Be sure to check out our small business resources page, which contains information and links that may be helpful if you're exploring handling an issue yourself.
MIDDLE GROUND—PROS AND CONS:
There are many situations somewhere in the middle, which are less clear-cut than those at either extreme. For these situations, it’s good to consider the pros and cons of hiring a lawyer. Depending on what issues are involved and what is at stake, it may make sense to hire a lawyer, or may make sense to do it yourself.
For situations like this, limited-scope representation may be an option. For example, if your business routinely enters into contracts with vendors, you could pay an attorney to prepare a “vendor contract” template that contains essential legal terms, and then revise that contract yourself for the specifics of each deal. Or, it may be helpful to have an attorney draft an employee handbook, which you can then update with specific descriptions and requirements for each job. Many landlords have their attorney prepare “form” eviction notices that the landlord then fills out for particular tenants. In such situations, it’s important to communicate clearly and fully with the attorney, so that the attorney preparing the documents understands what the documents will be used for. The attorney may even be able to give advice and/or instructions for how best to use the documents.
Some situations that fall into this category are the following:
Creating contracts for use with customers or clients
Employment or contractor agreements and related personnel issues
Negotiation and communication with other parties (e.g., issuing or responding to demand letters)
Business formation and related issues
Developing and documenting internal procedures
It can often be tricky to decide whether or not you need a business lawyer for your small business. We hope this article provides some helpful guideposts. If you’re struggling with this question, don’t hesitate to reach out and contact us today!