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Most people are familiar with the idea of “preventative” legal action. The term refers to anticipating legal issues and conflicts and working to prevent them rather than solving them or “winning” them once they occur. Companies can benefit from implementing preventative legal strategies as this approach is often less expensive than litigation, mediation, arbitration, and paying governmental fines. By working with an attorney early on in the creation of your new business, you can build a sound foundation for your company while likely saving money down the road.
Preventative Legal Planning in Action
What does preventative legal planning mean in practice? Consider the following scenarios and how they could have been avoided ahead of time.
Scenario 1: Intellectual Property Rights
AdventTech, a tech startup, develops a new management software product but neglects to conduct a thorough patent search or trademark its brand name. Another company claims the startup infringed on their existing patent or trademark, leading to costly litigation.
AventTech’s board could have avoided this by implementing a strategy that includes comprehensive intellectual property checks and securing patents or trademarks before launching their product. In California, this also means navigating state-specific trademark protections and ensuring compliance with the California Uniform Trade Secrets Act.
Scenario 2: Partnership Dispute
Ted and Carol form a business partnership without a clear agreement, confident that a verbal understanding is sufficient. However, they begin to disagree about profit sharing and business direction, leading to a messy legal battle that ends with their company ceasing operations.
Ted and Carol should have drafted a detailed partnership agreement at the outset, outlining each partner’s contributions, profit distribution, dispute resolution methods, and procedures for exiting or dissolving the partnership. Not only would this have clarified each partner’s rights and obligations, but it would also have provided them with a means to address disagreements constructively.
Scenario 3: Breach of Contract
Pat’s Deli signs a contract with a meat supplier without reviewing the terms thoroughly. The supplier fails to deliver on time, and when they finally do fill the order, they substitute lower-quality cuts for the premium product Pat’s ordered. This corner-cutting significantly disrupts Pat’s operations and costs the deli customers.
Pat’s Deli should have had legal counsel review and negotiate the contract before signing it. An experienced California attorney can ensure that the agreements include enforceable timelines, quality standards, and remedies for breaches, thus safeguarding the company’s interests. Additionally, they can ensure compliance with California’s specific regulations governing commercial contracts.
How to Implement Preventative Legal Planning at Your Business
Now that you know the importance of preventative legal planning, it’s time to implement it in your business. Here’s how to do that in three simple steps.
1. Find a Business Lawyer You Trust
Establish a relationship with an attorney who can assist you with the legal issues your new business will face early on in the startup process. When an attorney is familiar with your firm from the onset, they can more effectively anticipate and address legal challenges and provide solutions. Also, many business law attorneys will allow for a flat-fee relationship that enables you to address legal issues as they arise without incurring any additional expenses.
2. Set Goals and Draft Documents to Meet Them
Determine what you want, negotiate it, and memorialize it in legally enforceable documents. Businesses often run into disagreements with vendors, landlords, employees, partners, and others. Establishing written contracts for all important agreements, arrangements, and accommodations can minimize the number of conflicts the business faces and maximize its potential.
A California business law attorney can help you identify all key concerns regarding employee compensation and benefits, property usage and maintenance, relationships with suppliers, and responsibility and profit sharing with partners. An attorney can ensure that, when a question, disagreement, or conflict arises, your interests are written down, clearly stated, and legally protected by a mutual agreement with the party in question.
In California, this also means navigating the state’s strict employment laws, ensuring compliance with local zoning regulations, and understanding the unique aspects of commercial leases in the state. California’s stringent rules on employee classifications, environmental compliance, and the California Consumer Privacy Act (CCPA) are just a few examples of areas where local legal knowledge is invaluable.
3. Choose the Right Business Structure
There are many exciting steps in starting a new business venture; selecting the type of legal entity the business will be is rarely one of them. Yet, it’s important to choose the right business structure early. Corporations offer numerous advantages but also require officers, boards, articles of incorporation, and other formalities. Partnerships and sole proprietorships are simpler than most other business structures but open owners to potentially costly liability. Limited liability companies offer a middle ground for many, providing a liability shield and comparative simplicity.
A California business attorney can help you determine which business structure will work best for you by taking into account tax planning, location, and other key considerations. In California, this also involves understanding the implications of the state’s franchise tax, specific filing requirements, and other regulatory obligations unique to California businesses.
Contact Schneiders & Associates
Even with preventative legal planning, a lawsuit may arise. If it does, it’s important to approach it from a business, not a personal standpoint. This strategy can help you make decisions that are best for your company’s future, keep your focus on the day-to-day needs of your business and avoid unnecessarily disclosing information.
Get the help you need during this difficult time by contacting Schneiders & Associates today. We look forward to meeting you during an initial consultation, learning more about your business issue, and determining how best to address it.