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An Ounce of Prevention

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ounce-of-prevention-1As Benjamin Franklin famously said, “an ounce of prevention is worth a pound of cure.”  As we continually emphasize to our clients, the best time to establish written agreements and procedures is before disputes arise. Given the fact that many business owners embark on new business ventures with family members, close friends, and other familiar business associates, it is not surprising that they frequently operate with the attitude of getting the business off the ground while “figuring everything else out later.”

Of course, we understand this perspective, and can appreciate that time and resources may be limited. Yet, succumbing to this trap often leads to significant unintended, negative consequences.  The results frequently include loss of valuable time and money, and the uncertainty of unwanted litigation. The cost of cleaning up mistakes is exponentially higher than hiring a good transactional lawyer from the beginning. Sadly, we have seen the closest of friends and family members end up in court, something that could easily have been avoided through thoughtful, proactive planning.

The following are some common pitfalls that could cause issues or disputes later on: operating without written agreements among business owners; failing to document key business transactions; inadequate corporate governance; disorganized management structure; tardiness in state or federal filings resulting in fines and penalties; and commingling of business and personal funds. To be sure, these are just a sampling: there are an endless array of traps for the unwary, uninformed business owner.

Having appropriate agreements and business structure in place is crucial for many situations:  the onset of catastrophic events; preparation for a business acquisition or merger; or the smooth transition of a business triggered by a founder’s disability, death or retirement.

As experienced business lawyers, we strategize with our clients on how to best resolve issues and disputes when they arise. However, we much prefer working closely with our clients to proactively plan and prevent these types of issues from ever arising. And frankly, it’s easier, less costly, and more effective. Our clients are grateful in either scenario – coming to us before or after a dispute – but the before has much less headache.  

We look forward to speaking with any business owners who feel that they could benefit from this type of proactive approach.   

An Ounce of Prevention

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ph-programsThe following is a reprint of an article I wrote for the March 2016 edition of the Oakland Metropolitan Chamber of Commerce’s monthly magazine.

Everyone understands the value of lawyers if you are sued or need to sue someone who has damaged your business. Yet far fewer owners appreciate the value of consulting experienced business attorney before problems arise.

Just as in construction, when building a business one’s success depends on the time and energy spent establishing a solid foundation. Moreover, having an awareness of the consequences of the decisions one makes regarding one’s business is critical to the preservation and enduring stability of that business.

Having spent decades as a trial lawyer, I have the experience and insight to predict the kinds of mistakes most business owners are likely to make. I also know with relative certainty what the impact will be on a company when a particular mistake is made. This is not to say I’m clairvoyant; I’ve simply witnessed patterns in the hundreds of lawsuits I’ve analyzed and litigated.

I also know that the cost of cleaning up these types of mistakes is exponentially higher hiring a good transactional lawyer in the first place. Given the opportunity, such an attorney can craft the appropriate types of business structure, agreements, policies and procedures to reduce the possibility of catastrophic risks occurring. And such planning will also mitigate and reduce the effects of these occurrences. Stated otherwise, proactive planning is always cheaper and more effective than reactive crisis management.

Unfortunately, an increasing number of business owners choose to “save money” by using legal documents they find on the internet without ever consulting an attorney. Far too often, this type of “citizen lawyering” results in contracts and other documents that are completely unsuited to the particular business, and that lack basic legal protections. I’ve seen California businesses using contracts intended for use in Australia, setting up the wrong type of business entity, and as a host of other horror stories.

The lesson to be learned is that the more thought and time you spend identifying, understanding and planning for the risks your business may face, the more likely the company will survive and thrive. Consulting an experienced business attorney is key to this process.

When assessing any business client, among the questions I always ask are:

(1) What are the potential risks this business may encounter in the industry it inhabits?

(2) What type of entity or structure is best suited for the business, and that will provide the optimal legal protection and financial benefit?

(3) What are the legal requirements and procedures the owners must follow to retain the financial benefits and legal protections the business entity and structure can provide?

(4) Do the contracts and agreements the business uses provide appropriate protection against the types and frequencies of risks the business will face?

(5) Is there a written plan to protect the company and its owners in the event of a catastrophic event?

With these answers, an experienced business lawyer can help the owner proactively plan so as to support the business’ stability, growth and longevity.  Contact our office if you think your business might benefit from such a conversation.