General risk management

This Module deals primarily with the assessment of business liabilities and the handling of these risks.  These areas can be significant when it comes to getting a good nights sleep in starting your new business.  The risks of most businesses are easily insured and your legal structure, as discussed in Module 1, will go a long ways toward reducing risk.  In all likelihood, most small businesses will escape lengthy involvement in a lawsuit or other legal claim.  Hopefully, this Module will deal with the “preparation” only, and you will have little need to use it.  But in the event you do, you should be prepared.

Hiring professionals

The task of using an attorney involves the use of a professional.  As we have already discussed, the outside consultants are an important part of your overall team.  Many small business people are intimidated by using the services of a professional.  They see them as prohibitively expensive and normally used only by larger corporations.  While it’s true that outside consultants can be expensive, if you use their services well they can end up saving you plenty.  First they can save you time, which has a real worth now that you’re the boss and your time is scarce.  They will offer you a fresh outlook, and will often steer you toward specialized resources you have no knowledge of.  The cost of doing things incorrectly in this area is immeasurable.

To make contact with an attorney, one of the best ways is to get referrals from others.  Find out who practices ‘business’ law in your area.  Stay away from the personal liability or divorce attorneys.  You want someone with real experience in contract and litigation.  This will generally narrow the field quite a bit when you are scanning the yellow pages.  Once you have located some qualified attorneys you will want to set up meetings to see whether you and he or she are a good fit.  You should be confident in their abilities and establish a rapport right away.  Otherwise, keep looking.  It helps to get a list of references from them of other clients they work with, hopefully in your industry.  You will want to talk with these clients and see what their experiences have been.

Contracts, leases and other agreements

You will find that drawing up legal agreements is the most common need for your attorney.  If you will take the time to educate yourself a little in this you can minimize the time involvement and cost for your attorney.  You can start researching a project by trying to borrow from others what might already have been done.  For instance, in dealing with a property lease your landlord probably already has a lease form that is used with most tenants.  Get a copy and review the major provisions yourself first.  See if you can obtain other leases from associates or other contacts.  When you have worked through the major business issues you can then have your attorney review the final document prior to executing.

Contracts must meet certain legal specifications to be acceptable under the law.  First, all parties must receive consideration or “value” under their part of the contract.  Any contract that is drawn for the benefit of only one party is not a legal contract that can be upheld under the law.  Secondly, you should have a timeframe for all contracts, with a start date and ending date for the various effective provisions.  The length of time under various contracts will normally vary by the type of agreement.  Generally, leases and real estate contracts are longer term, which can be as long as 99 years.  Equipment leases or contracts are usually less than five years, which is tied to the life of the assets normally.  Other agreements may typically be reviewed annually and rewritten.  One area to evaluate may be the possibility of extending an “annual” contract.  It can be advantageous to review a contract every two years rather than annually, if you can make this arrangement.  Renewing any arrangement is usually time consuming and involves expense, and looking at extending such contracts, many which are typically reviewed annually by tradition, can save you precious resources.

Loan agreements are an example of a complicated contract that can involve close scrutiny.  You may be pressured to sign documents prior to closely reviewing them, and my best advise is “don’t”.  Take the agreement with you to return later, and take careful notes of questions you have as you scrutinize the agreement.  Your discussion of these questions will lead to a better understanding of the lenders requirements, and a mutual respect of the parties involved and their intent.  A word of caution, however.  Many banks are using boiler plate, standard form agreements, which they cannot change without involving their own legal counsel review.  If you insist on changes, you will often be expected to pay the banks legal costs in addition to your own.  (On larger loan agreements this is a normal feature.)  Some give and take is normal in most contract negotiations, and often the discussions that ensue result in better understandings by both parties.

Trademarks, Copyrights and Patents

Obtaining a trademark is not a costly or lengthy process normally.  It can act to protect your logo, name describing your product, or other artwork attributable to your company by indicating your ownership and protecting its use.  An example would be Nikes use of their checkmark as their logo.  They have been known to advertise their products with this being the only identifier of their company.  Trademarks have a 10 year filing life, and can be renewed every 10 years.  To determine that your mark is not taken you will need to do a check of names and marks.  For more information, obtain a copy of the “General Information Concerning Trademarks” from the Superintendent of Documents, Government Printing Office.

Copyrights pertain primarily to authored works of writing, and rarely enter into business law unless your business is publishing.  Today, the copyright laws have been simplified from the standpoint of the author.  The courts have interpreted an authors right to protect their distinct writings by using the words Copyright (or the Copyright Symbol) and the year with their work.  The formality of filing a copyright is not always required for works submitted by the original author today.

Patents are complicated and expensive.  If you need to protect a product design or invention it is advisable to utilize a professional patent agent or consultant.  A contact is included in the resource list at the end of the book.

Legal programs and on-line resources

There are some excellent computer programs to assist with legal documents.  Most are helpful in drafting documents and can save time by your not having to reenter key information on yourself or the other parties to the agreement.  They are usually flexible in how they have been written, so that they allow you to input Arizona as your state, and follow any specifications required by our state laws.  You can draft notes payable, business agreements, corporation meeting notes and resolutions, and literally thousands of other forms.  These programs do not replace your attorney, but are a starting point for you in the research for a legal problem.

On the Internet there are some new resources available to act as “legal consultant”.  They will offer to answer your questions on-line for a fee.  While I have not tried these services personally yet, I have read mixed reviews, and urge caution.  These services should not replace the relationship with an attorney that we have previously discussed.  Your attorney can’t really give you anything other than a superficial answer ‘on-line’.  You are better off to do the research yourself first as we are recommending, and consult with an attorney that knows you and your business.

Insurance

Business insurance, like personal insurance, has become a necessity in todays legal environment.  Types of insurance include general liability, fire, vehicle, workers’ compensation, key person, title, group life, health, disability, business interruption, and fidelity bonding.  Not all businesses need all the above types of insurance, but they all have their place and time.  You will need to look at all your risks and identify your needs, shop around for policies and rates, and weigh your options.  Before you contact any insurance brokers or agents you should evaluate your needs and become educated in the process.  After you are in business you will need to periodically review your requirements, also.  As your business grows your needs will change, and you want to make sure you’re fully protected in the event of a loss.

General Liability

This is the basic insurance service which protects your business from others having accidents on your premises and lawsuits from liabilities against your company.  An umbrella policy is typical, which normally includes fire, vehicles, liability, and personal claims under one policy.  Be sure to look at any policy ‘exclusions’ closely, as policies can differ.  Also, your total coverage needs to be high enough to handle the ‘worst case’ claim.  These days a $1 million limit is typical for most business policies.

Key person coverage

If you are the key person in your business, it may be prudent to obtain coverage which would protect the company should you die.  With many small businesses, the death of the owner will lead to a dissolution, which may not be in the best interest of the family and employees.  Payment of inheritance taxes is another consideration which can be provided for using this type of insurance.  In many instances a lender or investor will look at this, to protect their position should you suddenly be removed from the picture.  It can help to continue your business without interruption as your estate is settled.

Health, life and disability coverage’s

Depending on your legal structure, and your companies ability to cover the costs, you will probably need to consider these coverage’s.  Often you can participate in association or industry group policies at a substantial savings.  Check with your industry associations to see what coverage’s might be available.

Selecting agents

It can really pay to shop around on coverage’s.  Some brokers can be all things to some people, and most can offer some things to all people, but few are in a position to provide all things to all people.  By shopping around you might find some real benefits to splitting up your coverage.  Also, by using trade association or industry group brokers you can save considerably, also.  But don’t just look at price.  Service is also a major factor.  Choosing a good agent can be similar to choosing a good attorney or accountant.  Your interview of agents can tell you a lot about how they will handle claims or other needs later.