Tips for Avoiding Legal Headaches

So many small businesses begin as a simple idea involving a few friends. When the “company headquarters” is your garage, it’s hard to believe you really need the services of an experienced lawyer.

But it’s that attitude that dooms a lot of entrepreneurs to expensive, exhausting litigation. In some cases, it can even mean the end of a promising company.

Anthony L. Gosserand and Shawn L. Stogsdill, attorneys with the Van Osdol & Magruder law firm, listed a few areas where new business owners should seek out professional legal help.

Set Out the Rules of Your Partnership

Unless you are the only person involved in your company, you and your partners will need an agreement that spells out everyone’s rights and responsibilities. For an LLC, that document is known as an operating agreement. Companies that are structured as corporations should have a set of bylaws.

If you operate an LLC, it’s also smart to create a buy-sell agreement. (The buy-sell can be a free-standing document, or it can be part of the operating agreement.) It lists what should happen to the business if a partner leaves the company or experiences a major life change—such as dying.

In that case, a buy-sell agreement might give the other partners the option to buy out the deceased’s share of the company. That protects the survivors from having the dead partner’s inexperienced heirs suddenly becoming involved in the company’s inner workings.

Many new business owners avoid operating agreements because they are old friends and can’t ever imagine a situation where they might be at each other’s throats. In fact, Gosserand said, those kinds of conflicts are more common when the founders are close to each other.

“These business arrangements are a lot like marriages, and we know how many marriages end up in divorce,” Gosserand said.

Protect Your Intellectual Property

Decades ago, most businesses’ value lay in their equipment, real estate and other physical assets.

“As we get into a more tech-heavy economy,” Stogsdill said, “for a lot of companies, the primary value is in their intellectual property.”

Intellectual property—or IP for short—can be the patent on a new type of medicine, the trademark for the business’s logo or the copyright for company-produced photography. In most cases, entrepreneurs will need an attorney to file the appropriate government forms to protect those assets. (Or to defend them, should another company attempt to use your IP.)

Don’t overlook your company’s other intangible assets, such as your list of customers. By using nondisclosure, noncompete and nonsolicitation agreements, you can prevent former employees from poaching your clients after they stop working for you.

As your company matures, you’ll probably encounter other legal issues. That’s why smart entrepreneurs form a relationship with an
attorney or a firm over the long term as opposed to using DIY legal forms from the Internet. It’s a good idea to have an attorney on your team of professional advisers, along with a solid accountant, financial planner and insurance professional.

“Build a good team,” Stogsdill said.