Written by: Scott D. Calhoun
I am often called to consult with business owners about questions dealing with the structure or organization of their business entity. These questions typically involve issues related to:
Although these issues can often be resolved favorably, a positive result may depend on when you call the lawyer.
Establishing a new business entity is normally a straightforward process, but the details are not to be taken lightly. Documents have to be prepared properly, signed appropriately and filed timely. Having competent counsel is important even for these basic procedures – just as investors benefit from a financial advisor’s experience even when their goal is simply to invest in mutual funds. And timing can be just as important.
Legal Advice: It’s All in the Timing
Timing is even more critical when addressing issues affecting the respective rights and obligations of business partners. More than once, I have had to deal with business partners wanting advice on how to deal with buy-sell or management dispute issues after a situation has developed. Waiting until the issue arises makes finding a mutually acceptable solution significantly more difficult.
The time to address these issues is up front. The business partners should consider how they will deal with the death of one of the partners, or with a decision by one of the partners to leave, or with designation of management responsibilities.
There are various alternatives for each of these issues, and decisions are much easier when made early on. The partners will be much more likely to be on the same page or in a mindset of finding agreement. If they wait until a problem arises, solutions are more difficult and the process can be hampered by history or a sense of a need to win.
The same considerations apply to issues affecting business succession and continuity. These issues may not arise at the time the business is being organized, but they deserve attention as early as they appear. Succession and continuity issues may impact management decisions – a company being positioned for sale to outsiders will be managed differently than one being groomed for family succession. Legal structures and transactions are integral to these decisions.
Conclusion
What’s my point here? Legal advice is more effective (and often much less expensive!) when the lawyer has the chance to deal with questions before the issues surface. That means the best time to call is when the company is formed, or when new partners are brought in, or when ownership begins discussing succession plans.
But no matter what, it’s always better to call prior to circumstances developing into a dispute. Remember, your lawyer can be your friend before problems ever arise.