Simple. Having an attorney for your business before a problem arises can often avoid the problem altogether.
The best way to illustrate how an attorney can avoid problems for your business is through anecdote. Here are 5 examples of common problems new businesses face to highlight the point.
1. The poorly written services agreement
A services agreement is typically more complicated than a purchase agreement for a good. This is because when one buys a good, they have a fairly good idea of what to expect. For instance, you want to purchase a new bicycle. You have already looked at the exact model or the actual bicycle you will be buying at the store. The purchase of services, on the other hand, do not easily lend themselves to examination before purchase. Service providers rely on marketing materials and reputation to persuade a potential purchaser that they are the right fit. If that works, the parties will make promises regarding performance and deliverables; reduced to a writing or a contract. It is generally not advisable to promise success based on past performance. Without a contract, however, that specifically outlines what the service provider will deliver, disagreements regarding what was expected or the lack of satisfaction are more likely to arise. Sometimes accusations of promises made in sales pitches can become central to a dispute. The services agreement is not a marketing tool. It is also not a vehicle by which to regale the purchaser with past performances and guarantees of success. All too often, a novice services provider will forgo the necessary tedium of marking milestones and deadlines in exchange for representations to convince the purchaser to execute the contract. This is a costly mistake because those representations will then form the basis for a breach of contract claim, at the very minimum. A properly drafted services agreement, with the right accompanying advice, can develop a client intake approach that is both legally sound and successful.
2. The misclassified worker
In this scenario, imagine your business is getting bigger. You hire staff and you know what your expectations of them are. You hear that classifying workers as independent contractors is more cost effective than hiring them as employees, so you have them sign independent contractor agreements. Time goes by and how the work is being produced is increasingly regimented with work hours being set, computers handed out and even health insurance offered. A dispute then arises between one such worker and your business. The allegations are that they are in fact employees, that they were entitled to a salary commensurate with minimum wage, and taxes were to be paid by the business on behalf of the worker. The remedies for such misclassification and wage and hour violations, if proved, can include back pay, overtime, attorney’s fees, and penalties. In this scenario, Jabaly Law can advise, in conjunction with a business tax advisor, on what arrangements work best for your business model. If the work can be accomplished with less supervision, by setting goals instead of a work schedule for instance, it can better support an independent contractor classification. Of course, this determination is fact specific and there are multiple factors to consider. And it must be said that it is not always less expensive to classify workers as independent contractors. Getting this right at the start can be very lucrative for a business as it can help avoid such a dispute down the road.
3. The partner problem
Partnership problems occur regularly. In fact, sometimes they are hard to avoid. Take the example of one owner who wants to take the company in one direction or is taking it in a completely wrong direction. What are the other owners and/or the business to do? Well, if you consulted with an attorney, they might ask this important question at some point: what does the agreement say about this? It is not generally required to have a written agreement and there are “gap-filler” provisions in the law that will address certain situations. However, it is generally more advantageous to have your own provisions that account for your business’s unique needs and desires. The law contemplates such deviations. For example, a business can craft a specific procedure to expel owners, a tailored methodology by which to value the expelled member’s ownership interest without the need to heavily litigate that issue, or to determine the dispute resolution mechanism when disputes are irresolvable between the parties alone. Jabaly Law educates itself about its clients to lay out these options for its clients before such a problem arises.
4. The forgotten tax authority
In this scenario, a business has already been established. Business bank accounts have been opened, an office has been leased, and work has commenced. If you have never owned a business before, you anticipate the regular tax filings required each year. You file the state and federal returns for your business. After all, your CPA has the company’s information, and they are done well in advance of the deadlines. Despite your diligence, the business receives a letter from the city or county in which it has its principal place of business asking why you never filed local tax and business property returns. The business may even be a limited liability company enjoying pass-through taxation, but the local tax authority still expects payment of a significant tax payment. Late payments incur significant penalties and can even result in criminal charges if intentionally avoided. The online service you used to create your company and establish your EIN never told you about it. This scenario plays out more often than one thinks. If Jabaly Law establishes your business, legal advice to help you avoid this problem is part of the service.
5. Workers without guidelines
An employee handbook can be extremely helpful at avoiding misunderstandings which can in turn lead to more serious disputes over a slew of different issues. An employee handbook can lay out the policies and procedures necessary to smoothly operate a business. For instance, most companies want to comply with the law by ensuring that sexual harassment and discrimination are not tolerated, and when they occur, there is a procedure to report it. Without these policies, it may be more difficult to defend such a charge. Furthermore, guidelines regarding the use of technology at work or procedures to follow when requesting leave can streamline a business’s operation. A streamlined business is a successful one. It is not one size fits all, however. Jabaly Law learns about what matters to its client before creating its handbook.
Jabaly Law can help new businesses avoid these common pitfalls through legal advice and contract drafting or review. Reach out today to learn about our service package for business startups. Or, if your business is currently facing a challenge in any of these areas, schedule a consultation to find out what your options are and how Jabaly Law can help you.
