What Is Your Legal Strategy

by | Apr 30, 2024 | Business Entity

What Is Your Legal Strategy & Why Does It Matter?

I have founded and developed two businesses: one in the EdTech sector and EmergeCounsel. It’s precisely this personal entrepreneurial experience that gives me a unique insight into my business clients. I understand the challenges because I live them myself.  I get that there are a million things required to run a business  (many not revenue-generating) and very little time to do anything else. When we have time to focus on the business (as opposed to in the business), our concerns are typically about business strategy: What is our new nut if we add an employee? Can we fine-tune our marketing message? Should we open a new sales channel? Concerns about developing a solid business legal strategic plan, unfortunately, become a low priority for many business owners and C-suite executives – they just don’t have the time or inclination.

Then there is the “attorney” issue.  Trust me, I get it.  Attorneys can be relatively expensive and specialized, and the subject matter is often arcane and dull.  How about that lawyer next door who argued about your tree branch falling in his yard? Who wants to the likes of them?!

Regardless of where I sit, a business’ legal strategy really matters as much or even more than a business’ business strategy.   Here are some examples of why:

A)   Unclean Co-Founder/Management Agreements: Facebook’s Mark Zuckerberg paid out  $65 million (and several million dollars of legal fees) for not adequately addressing the terms and conditions of equity for source code provided by some college friends.  (Granted, $65 million in proportion to Mr. Zuckerberg’s wealth is not that much).

B)    LLC Mistakes: LLC formations are cheap;  however,  they are a creature of contract (memorialized in an operating agreement), and if you plan on, e.g., selling or providing equity to key employees or adding a partner, the contract has to be 100% clear (sometimes up to 100 pages clear) on how that is going to happen – all the what-happens/what-ifs.  My most lucrative cases involve ambiguous operating agreements, those that don’t adequately address the what-happens/what-ifs, which eventually come to fruition (for example, if a co-founder or partner slacks off or even stops working).  We generally have worked those issues out after the threat of litigation and several tens of thousands of dollars in legal bills.

C)     Branding without Clearance:  Branding is generally the number one way to increase business because it defines how customers relate to your business.  If you do not clear the name (and sometimes image) with counsel, you have a significant increase in the likelihood of the need to rebrand (a big deal) or face a federal lawsuit.  I can say that it is far more lucrative for me to handle trademark litigation than to conduct brand clearance.

I could continue in this vein, but you get the idea. If your contracts/terms are not customized for your business, it is all good until it isn’t. One day a customer can decide not to pay or sue you. Or take, for example, the underpayment of sales tax. I am not sure that state tax auditors have time to notice, that is, until the business sells and needs a tax clearance for due diligence. How about an absence of employment policies, handbooks, or a miscategorization of independent contractors? This happens all the time… but it’s unfortunately low-hanging fruit to a plaintiff’s employment attorney, who can be next to impossible to get rid of without a significant payout.  The same situation applies to privacy, terms of use, funding, governance, and regulatory compliance.

There is some element of law to every aspect of your business.  There is no dispute that your situation may be unexceptional as compared to your competitors, so little may need to be done.  Regardless, as a business owner, if your goal is growth and the formation of a strategic exit plan, retaining legal counsel to assist with a comprehensive business legal strategy is crucial.

Engaging me to undo poor, non-strategic legal work and/or after the legal issue has stung the business, although personally lucrative, brings me no joy.  I will always advocate that a thorough discussion of your business’ legal strategy with counsel early and relatively routinely is, without exception, the right decision for your business.  It merely involves scheduling time with competent and empathetic counsel to understand your business, goals, passion, and exit strategy to create a prescriptive and stage-appropriate plan to be revisited throughout key stages of business growth.

If you aren’t convinced you need a business legal strategy, ask yourself two questions:

Do you want to grow the business?

And what would any investor/buyer think if there were seminal legal issues regarding your business once you grow?

I can vouch that the investor/buyer who uncovers legal issues will either say a) not interested anymore or b) as we need to assume the risk, we will discount the value of the business accordingly (e.g., a $10 million offer becomes $6 million).  You are the odd person out if you want to be the seller at that point.  Have I convinced you now?

Contact EmergeCounsel today!


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