Inside Small Business | Small Business & Home Business Marketing

Legal Issues

LW: So with your partners and the legal aspects of that, is that the only thing you guys really needed to talk to a lawyer about?

Brian: We did a lot of our formation documents with a lawyer and then I think there's a lot of things, especially as a consultant, where we need a lot of contract help. So as I mentioned our employees are actually 1099 and we also used a lawyer to help us set up the contract agreement so those things are set up correctly. And then as we engage with our clients, we use a Master Service Agreement or contract and again having that assistance is good. And frequently in our business as well we require Master Service Agreements or Non-Disclosure Agreements or Confidentiality Agreements, in some cases there's Commission Sharing or Incentive Agreements. So there's a ton of agreements, and we've used legal counsel to help draft initial cuts of all of those documents and then we've been able to take them and use them as appropriate. Having those documents and having those legal protections has been very critical to us.

LW: Did you guys look into incorporation or patents or anything like that?

Brian: Incorporation we looked at, and there's pros and cons on each of those. I'll probably leave that for a different discussion, you know there's reasons for each of them. We specifically chose LLC as our formation just because that seems to be a little bit easier and also easier from the tax perspective, but there's valid reasons why you would do any and all of those. As far as patents, we have been working on a proprietary methodology, as I mentioned, to help us serve our clients in a way that is better and actually will help distinguish us from all the others who would be in more of a body shop sort of consulting mode. And so we have gone through some of the patenting process on it. We filed the patent about 5 years ago and still waiting to hear. So right now I'm patent-pending and probably will be for a few more years.

LW: It sounds like you have a little more of a firm grasp on the whole legal side of things than most small business owners. In your opinion, what do you think are the biggest legal oversights that small business owners make?

Brian: I would say the biggest one would be not having all of the discussion around incorporation and the what if analysis of what happens if the company is disbanded, what if we're not financially viable anymore and how would we break this up, especially in a partnership situation. I think having detailed discussions is vital, and they are painful discussions but there's really no way around them. There's discussion around compensation agreements, there's a notion of, if I'm a partner and you're a partner, if I'm selling 90% of all of our revenues attributable to my relationships and my activities, how is that rewarded? And for the partner only bringing in 10% of revenues, how is that handled and how much longer are you going to be a partner if this keeps up? There's a ton of those kinds of questions that are very uncomfortable and they're things that need to be flushed out.

LW: If you had to pick one thing, what do you think the biggest lesson you learned is as far as the legality of it all?

Brian: From a legal perspective, I'd say just having the right agreement in place at the right time. I can tell you there's a number of cases where a client or a business associate has invited me out to lunch and said "Hey, I need to tell you about something that we're working on but I need to put you under a non-disclosure agreement before we can talk about it. Can you meet me for lunch?" and I can say, "Yeah, do you have a form?" And they say, "No, we don't have one. But I can't talk to you about this until we have some sort of agreement." And I can say, "Alright, I'll print out a couple of copies and meet you for lunch." Because I have them. And having that ability has been really crucial for a number of things.