Plan Ahead, Avoid Stress and Litigation

Let’s face it, a phone call to your attorney is typically an afterthought, not a before thought, e.g., before you find yourself on the wrong end of a lawsuit. Hiring an experienced business lawyer early in the game helps to ensure you still have a business, and greater profits come the ninth inning.

Even small business operations are complicated, with a plethora of decisions to be made and plenty of handwringing and second-guessing. You will want, and need, the advice and involvement of an attorney when it comes to important decisions, interpreting contracts, and drafting critical documents.

Your business attorney is there to act in your best interest and help you understand the hidden risks in each situation or agreement.

There are many topics of interest to focus on, and we will have time to cover many of them throughout the year in this column, but let’s start with these common trouble spots.

Structuring Your Business
Your business structure is more than the entity classification following your company’s name on your business card. How you structure your business affects the amount of tax you pay, your ability to raise capital, it determines the necessary paperwork to file, your personal liability, your freedom to operate, and more.

What are your choices? Sole Proprietorship, Partnership, Limited Partnership, Limited Liability Company (LLC), C Corporation, S Corporation, Limited Liability Limited Partnership (LLLP), Close Corporation, or a Non-profit Corporation.

This is your first step. Choose wisely.

Shareholders’ Agreements
Many business ventures have ended on a sour note by the mere utterance of this simple phrase: “Let’s shake on it.” Stop right there. Even the best of friends, or once-upon-a-time, like-minded partners can, and often do, develop opposing visions of the company’s future.

In many instances, the owners will disagree as to a major corporate action, such as the appropriate time to dissolve or sell the business.

By entering into a solid shareholders’ agreement, operating agreement, or partnership agreement (as applicable) from the outset, you can make quick work of resolving these issues. The strategy is to minimize or eliminate litigation. If the owner’s rights are clearly spelled out in the agreements from the outset, then there is often no need to litigate.

Common Employee Issue
You do your best to hire the right people, and with each new hire there is a sense of accomplishment and hope. However, this time, it was a “bad” hire for any number of reasons. It happens.

If termination is the only option, make sure your attorney has drafted a termination and release agreement for the soon-to-be-exiting employee to sign, clearly setting forth the post-termination obligations of both employer and employee. Terminating an employee without doing so can leave you vulnerable to litigation.

It is important that all employees sign written agreements at the outset of their employment addressing such issues as confidentiality, post-employment restrictive covenants, such as non-solicitation of employees and customers, and IP Assignment.

Intellectual Property Licensing
For some companies, intellectual property holds more value than tangible, real property. It is no surprise the high-tech industry is becoming a driving force in Intellectual Property Licensing.

If your business model involves licensing rights, make certain you know the difference between Assignment Agreements and Intellectual Property Licensing. In addition, you will need to brush up on the differences between Exclusive License, Non-Exclusive License, Revocable versus Irrevocable Licenses, and fully paid licenses.

These documents are complex and require careful consideration and negotiation.

Protecting your business, and yourself, from debilitating and costly legal matters means thinking and planning ahead. Before you make your final decision, or sign that piece of paper, pick up the phone and call us.

Upcoming Topics
We will be covering a wide range of important legal topics related to your business in the coming months. If you have a question or a topic suggestion, please contact me.

Robert Brandt is a business transactional attorney with Clayton-based Blitz, Bardgett & Deutsch, L.C. He has been advising business owners, from small operations to major corporate brands, for more than two decades. A recognized Super Lawyer® in Missouri & Illinois, he can be reached at: rbrandt@bbdlc.com, or 314-881-4833.