September 17, 2012

In my last post I suggested that one of the fundamental questions for any new attorney interested in launching a “business practice” is, quite simply, what is a business attorney?  In fact, one of the most important tasks for business attorneys and their clients is defining the role that the attorney is expected to play in the client’s activities and operations.  First and foremost, the attorney must be able to provide expert guidance on the selection of the appropriate form of legal entity for operation of the business and the procedures that must be followed in order to comply with the operational rules of the selected entity.  For example, if the business will be operated as a general business corporation the attorney must be familiar with the steps that must be taken to form and organize a corporation in the applicable domicile and the various corporate governance rules that must be followed by the officers, directors, and shareholders.  Beyond expertise with a given entity, the attorney must be able to provide advice to the principals of the client regarding compliance issues in other substantive legal areas including intellectual property law, employment law, tax law, securities law, antitrust law and laws pertaining to the sale of goods.  The attorney must be knowledgeable about the permit and licensing requirements that may apply to the particular business.  Finally, the attorney must provide guidance regarding the terms of various commercial transactions that are typically faced by any new or growing business.

The items described above are really just the bare minimum requirements for being a good and competent business attorney and those aspiring to take on additional responsibilities for their clients should be able and willing to provide legal advice that is related to the specific activities of the client and should also be prepared to expand and shift their focus as the business of the client develops and matures.  For example, when an attorney is planning to represent a group of founders launching a new technology-based company the attorney should expect to be heavily involved in the following activities:

  • Selection of the proper form of legal entity for the new business and completion of formal legal requirements to form and organize the chosen entity.
  • Advising the founders and other proposed senior managers of the new company on their ongoing legal duties and responsibilities to current and former employers.
  • Preparation of shareholders’ agreements among the founders and among the founders and outside investors.
  • Preparation and negotiation of key initial contracts between the company and its vendors, customers, employees and consultants.
  • Development and implementation of strategies for perfecting and protecting the company’s intellectual property rights.
  • Advice regarding compliance with statutory financial reporting and other disclosure requirements.
  • Advice regarding compliance issues in other substantive legal areas, including tax laws, labor and employment law, and antitrust and competition law.

While experienced attorneys will generally have some general background in handling each of the listed situations, the rapid changes in legal and regulatory requirements typically dictate the use of a team of attorneys with collective expertise covering each of the areas of importance to the company.  This may include specialists in areas such as real property, tax, employment and intellectual property.  Coordination of the legal team is an important issue and it is the responsibility of the lead attorney at the company’s outside law firm or an attorney on the company’s payroll acting as the chief legal officer on the senior management team to make sure that responsibility for all necessary tasks has been clearly allocated and that everyone involved understands the schedule that the client has set for completion of required activities.

As noted above, the role of the company’s business attorney will change as time goes by and the company enters into new phases of development and complexity.  For example, as the company expands its operations into foreign markets the attorney will need to provide support on compliance with export, import and inbound foreign investment laws as well as other local laws in countries where the company is doing business, acquiring and operating assets and hiring personnel.  If assistance from local counsel is required the company’s regular business attorney will be expected to oversee those relationships and manage the work of foreign attorneys.  If the company completes a public offering or remains privately-held but obtains financial support from professional investors, the attorney will need to provide sophisticated corporate governance guidance to the board of directors and members of the executive team.  If the company decides to grow through acquisitions the attorney will need to be conversant with the tools of the so-called “M&A” trade.

The role of the attorney for a new or established business should, and can, extend beyond legal factors to include independent and candid advice on economic and business aspects of the enterprise.  This presents a special challenge for the business attorney, particularly if they have no formal business training.  However, business attorneys will develop valuable experience simply from being involved in business deals and from observing the problems of clients and how they are ultimately resolved.  In addition, attorneys who are serious about achieving business counselor status will invest the extra time and effort necessary to obtain a solid knowledge base in finance, management and strategy that will allow them to speak the same language as their clients and create opportunities to act as a trusted business advisor for client as opposed to being seen as just a purveyor of expertise in a limited area.

It is important in counseling the client who wishes to form a new business to get the client to fully explore the business risks of the proposed venture, since those risks, such as failure to penetrate the expected market, are often more important than the legal risks, such as tort liability for employees’ acts. The client starting a new business should be assured that the only realistic approach in appraising whether to begin a business is to overestimate the difficulties and financial commitment and underestimate the profits.  In many cases, it may be helpful to remind the client that this is not the only business opportunity that will present itself.  If the attorney thinks that the business will not be profitable for the client or that it is underfinanced or not worth the risks, he or she would do the client a favor by saying so.  Providing a candid appraisal of whether a client should go forward with the business requires effort, tact, and courage. However, the business and financial advice may well prove far more valuable to the client in the long run than pure legal advice.