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Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

5 Rules for Working with Business Attorneys 4

With due respect to the do-it-yourselfer incorporation and legal tools, and particularly my long-term friends at Nolo Press, if you are going to have your own business then you want a long-term relationship with a business attorney.

This is a litigious world. Avoiding attorneys is false economy. Normally you start with a small business attorney. As you grow that might expand to include an intellectual property specialist and maybe an employee law specialist.

I’ve worked with several excellent attorneys. I’ve made some mistakes, and I’ve learned a few things. Here’s my advice on that:

1.  Take time to select carefully.

If you own a business you need to have relationships with at least one attorney and at least one accountant. Take the time to find compatible competent professionals. Start by asking around (friends, relatives, business people you know) for recommendations.

Don’t just jump with the first person recommended by your friends or relatives, find at least three candidates. Look at their websites (an aside: I won’t deal with professionals who don’t have competent websites; it’s 2011), see if you can find their content offerings in blogs, follow them on twitter if they’re there, and – by far the most important – meet them and talk to them. Ask them about rates, and average monthly costs. Ask them for a client list and check references. If they’re shy about giving you names, that’s a warning sign.

If you have an attorney in the family, think about this example: The smartest attorney I ever worked with was my older brother. It’s great to have somebody you trust. But that also got awkward occasionally because he worked for me for free, and it was hard to ask for help when it was free.  When I changed attorneys because we moved, my next attorney was delightfully proactive with making sure we had proper filings and minutes and such.

Forget all the mythology about sharks (and I have to apologize for my choice of illustration here; I couldn’t resist). I’ve run into some nasty dishonest attorneys, but I’ve had no trouble finding smart, honest, and easy-to-like attorneys. The attorney jokes and all that are the obvious phenomenon of a few bad apples giving the whole barrel a bad reputation.

2.  Do your own homework to minimize costs

There’s so much good information and advice available, on the web and in books, that you can reduce legal fees by doing your homework first on things like choosing between sole proprietorship and corporation or LLC or partnership, for example, so you understand the main terms, and the most obvious tradeoffs. Then you optimize your situation by going into the attorney talk already knowing a lot of the basics. Let the attorney help you with the fine tuning.

3.  Watch the billing details carefully.

Be straight with your attorney about money. If there is an occasional business lunch or social meeting, make sure you’re clear about whether any of these are non-billing occasions. Be clear with phone calls too. I liked to set the terms myself, specifying as I got into the conversation that I wanted some legal advice over the phone, and that I expected to pay for it; or, in some cases, that this was just social or community work or logistics, and I didn’t think of it as a billing call.

Then read your bills. Look at the time charge amounts, and question them when they aren’t obvious. Question them when they are bundled up into general categories only, like research, for example, rather than itemized down to the detailed incidents.

4.  Distinguish between legal advice and business advice

Help your attorney manage this important distinction. You want your attorney to give you legal advice, but the borders get blurry. For example, you’re trying to do a contract with a big company and their contract has disputes being settled in their home jurisdiction. That happens a lot, and when it does, the biggest dog wins. If you don’t handle the difference between legal advice and business advice well, you can end up with your attorney wasting your time and money, and even screwing up the deal, by insisting on controlling the theoretical venue of theoretical future disputes.

Great moments in attorney business: I worked for years with an attorney named Tom Hoyt who had the sense to make the distinction clear. “That’s a business decision,” he would say. “My job is to tell you the legal side, but you have to decide whether or not you want to take the business risk.” That avoids the awkwardness that happens when the attorney advises one thing, for legal reasons; and you do the other, for business reasons.

5.  Demand and accept responsibility

There are some things attorneys are supposed to actually do for you, as professionals, rather than just advise you. For example, keeping files of corporate minutes, fling the annual paperwork for the corporation, tasks that involve just doing, not asking. Tell your attorneys in the beginning of the relationship that you expect them to take responsibility for these tasks; you will be billed, but you won’t be paying the penalties incurred if they do it wrong.

And, as the reality of point number 4,  accept the responsibility for choices you make because you have to, the business choices, when they have bad outcomes.

(Image: egarc2/Flickr cc)

  • http://www.minorbrown.com/ Denver Business Attorney

    Very good points. I worked with Minor Brown’s Denver business attorneys and my experience with them was great. Everything was laid out on paper and they definitely provided great professional guidance. It is essential that you really choose good attorneys.

  • Dr G

    This was very useful information,especially point#4 as the jurisdiction clause in a case ended up costing me big time(I learned my lesson though),I would not have explained any better than you did.

  • http://www.inneslawfirm.com Alyson Innes

    Tim,

    Thank you for this list of recommendations for dealing with business attorneys. I’m glad you clarified the use of the illustration – as an attorney it struck me as adopting the general public opinion and stereotype of attorneys as sharks who prey on their clients. As you later point out, not all of us fit that stereotype.

    That aside, it is always an excellent recommendation for a client to make his/her needs and budget clear. A business should absolutely interview the attorneys to make sure that they are able to clearly and effectively communicate with each other. Businesses should ask for recommendations and references. The client list, however, can be a bit trickier. There are some businesses that do not have a problem with attorneys sharing that information (I have one client who proudly stated that we could tell everyone that we serve as his general counsel). However, since an attorney-client relationship is confidential and the matters resolved within that relationship are sometimes sensitive, there are businesses that would prefer that their attorneys not publicly announce their use of legal services (even in a general sense). Some businesses do not want outsiders to assume that there is an issue with the company because they had to hire an attorney.

    When making your decision to hire a business attorney, remember that it is not always about the bottom line. The least expensive attorney may not meet your business needs. That being said, there are several ways that attorneys can bill for legal services. There are business attorneys who bill by the hour (this is the one that can get expensive — quickly). There is another theory of billing, one to which we subscribe, which is to bill by the project on a flat fee basis (no hidden fees, no surprises). There still another option that we utilize as well, which is a monthly retainer. Depending on the needs of the company, some attorneys will negotiate a set monthly amount which includes all telephone calls, e-mails, other correspondences, and contract reviews with comments. We have several clients that find this third option useful because they want to be able to pick up the phone, ask any questions that they might have and have standard documents reviewed as necessary without worrying about a ridiculous bill at the end of the month (or have to call their lawyer cousin). This third option allows your business attorney to address potential legal issues with you and your company at the forefront, possibly preventing unnecessary litigation later on.

    Do not be afraid to ask your potential attorney and hired attorney any questions you may have. Ask for an alternative billing structure that fits your business needs. A law firm is a business as well, and, if you do not ask, you will not receive an answer.

    • http://timberry.com Tim Berry

      Alyson, yes, thanks very much for adding that additional suggestion about dealing with budgets. That should have been there from the beginning.

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