How to avoid litigation by engaging your attorney early in your business Featured

8:01pm EDT July 31, 2011
How to avoid litigation by engaging your attorney early in your business

In the excitement and hard work of starting a company, it’s easy to overlook all the legal aspects. But having a business litigator involved from day one can improve your odds of having a successful venture and help prevent you from making costly mistakes down the road, says T.L. Summerville, a member at Dykema Gossett PLLC.

“I can’t stress enough the importance of an entrepreneur getting good litigation avoidance advice, in conjunction with getting advice on organizing the business and getting set up,” says Summerville. “Those two things go hand in hand, and it is critical to get that input from a qualified attorney.”

Smart Business spoke with Summerville about how an attorney can help your company take steps now to avoid litigation later.

Why does a business owner need an attorney from the start?

Beyond just doing contract documents, business owners really need to have someone look at what their exposures might be and how to avoid and control litigation in the early years of the business. The attorney can also assist with things such as putting together employment manuals and policies, which will help with everything from hiring decisions to discipline. That allows a business owner to address legal concerns in a more comprehensive manner than he or she may be accustomed to doing.

Take the opportunity from day one to use your lawyer, starting with the simple drafting of articles of incorporation, and then as you move forward, with things such as expansion and the acquisition of assets and property. But even if you didn’t take advantage of that opportunity from the beginning, it’s never too late to start forming that relationship.

What kinds of things would an attorney address early in the relationship?

The attorney will look at what research you’ve done into the problems that you’ve seen as common in your industry. For example, if you’re getting into the IT business, have you talked with other people in your peer group to find out what they did and how they protect their own individual property? What are your ideas on marketing your product and protecting the information that you are going to put out into the public domain? How do you envision your company being organized? Will it be a single-member LLC, or do you want to incorporate?

The attorney should also inquire about the kinds of contracts you see yourself entering into and how you intend to deal with staffing considerations. Will you hire at-will employees or use short-term contracts? Do you want to go through a staffing company?And what are the contracts that you are going to sign and lock yourself into? In a staffing agreement, what are the fees you are going to be charged?

At the beginning, you’ll be dealing with the attorney in very basic information in terms of who, what, where, when and why.

What would you say to business owners who say they’d rather just download standard forms from the Internet?

There is no one-size-fits-all approach, especially when you start talking about dealing with employees. As your company grows, you’re going to need expertise in that area. If you want to grow to 100 employees in 10 years, you need to talk to a lawyer to find out what you, as an employer, need to do to protect yourself against liability and comply with federal law, for example.

It’s just a better idea to have an attorney give you advice before you sign any contracts, even ones you might download from the Internet. And if your business is providing a service rather than selling a product, an attorney can help you make sure that your contract for your services includes the terms and conditions applicable to the provision of that service. You want to really dot the I’s and cross the T’s.

Too often, a company has just a very simple contract that says little more than, ‘I’m going to do this thing for you, and here is my price.’ But the finer terms or conditions aren’t sketched out. The contract may not include what happens if the buyer doesn’t pay within a certain number of days of the invoice, such as whether interest is going to start to accrue.

All of those things can be worked through with the advice of a lawyer, so if the purchaser stops making payments, it is clear how that will be addressed. Otherwise, if payments stop, you may have very limited options beyond waiting to see when the next check is going to arrive, because it wasn’t addressed in the contract.

What should a business owner’s relationship be with his or her attorney?

The attorney can help you with managing the legal aspects of your business, and hopefully that will be a partnership that will continue. The attorney should be your go-to person for whatever need arises, and you should know that that relationship will be there and that person is someone you can trust.

Your attorney should get to know your business, your industry and your competitors. The attorney should also be watching for trends that could impact your industry, such as changes in the law that could have implications on what your business is doing.

By working with your attorney as a partner, you can take the right steps now to avoid litigation in the future.

T.L. Summerville is a member at Dykema. Reach him at (313) 568-5359 or tlsummerville@dykema.com.