Do It Yourself Lawyering -What's The Real Cost
How many things do you do that you are not qualified to do? I mean really not qualified.
Do you ever stop to think what it costs you? Probably not….most people just think about the short term “savings”….that really aren’t saving them anything…..(but I’ll save that specific lecture for another post).
I hear it all the time at networking events and even with clients in early stages of our coaching relationship, all the things they do themselves to save money – from bookkeeping to web design to legal matters.
Yes, even legal matters.
It’s really not about what you are saving by doing it “yourself” now…..it’s about what it will cost you because it’s not done incorrectly; and in legal matters – you don’t even want to know what it could cost you – not just the money it could cost you ….it could cost you your business.
Recently at an event, a group of us were standing and chatting about all the things we were up to professionally. One woman in the group shared how she had established a new division of her company and made the statement, “…..so then I set up my LLC.” It prompted me to ask the question, “You mean you had your attorney do it, right?”
She just stared blankly and then bristled a bit and said, “Uh no….I just did it online…it’s not like it’s hard or anything.”
(This is the point where you can put your palm to your forehead…..hard….really hard …go ahead….I’ll wait).
As a coach I couldn’t help myself, and suggested that she have her work reviewed by an attorney to make sure she hadn’t missed anything. Yet, I knew in my gut that wasn’t going to happen.
Knowing my skill set – I am NOT an attorney nor do I play one on TV – I thought I’d interview my friend, colleague and my own business attorney Stacey L Romberg, Attorney At Law about the perils of do it yourself lawyering.
Stacey is one of the most highly regarded business attorney's in Seattle, and has some seriously savvy business chops as well. She is a frequent contributor to AmericanBar.Org and her own firm's Insights Blog is FULL of great resources written by Stacey and her team.
Below is our interview.
Me: What happens for you as an attorney when you hear someone say, "I set up my......LLC....SCorp...."etc?
SLR: I wince! I recently wrote an article for the U.S. Small Business Administration stating, “Many business owners decide to do this work on their own, which is comparable to letting your fourteen-year-old nephew build your new home without supervision!” No one would do that, because people understand that the process of building a home requires professionals such as an architect, engineer and general contractor. Yet, somehow, people seem to miss this lesson as applied to their business, and believe that they can substitute a 30-minute session of on-line reading for a three-year law degree, passage of a Bar exam, and years of practice and experience in setting up business entities.
Me: What are the business owners missing when they don't get legal counsel in establishing a business entity?
SLR: Many business owners say that they want to establish a business entity in order to protect themselves from individual liability. However, unfortunately, I think many business owners fail to understand the basics of litigation. Let’s say XYZ, Inc. operates “Joe’s Donut Shop.” A customer falls down in the shop, and sues XYZ, Inc. The fact that they have a corporation will NOT automatically protect them from individual liability – especially if, for example: (1) the corporation has never had properly documented annual meetings; (2) the corporation either has no Bylaws, or the Bylaws are routinely ignored; (3) the corporation has never issued stock; (4) the corporation has never elected officers and directors pursuant to the statutory requirements. All of these shortcomings will come out in the course of the discovery process in litigation. And when business entities are not formed and maintained correctly, it creates an argument that the entity should be “pierced” and individual liability for the business act should be allowed.
Me: What kind of a mess can they end up in?
SLR: As indicated above, they can be held individually liable for a business obligation. And many other considerations may come into play. For example, if the business is to be sold down the road, the lack of proper legal structure will come out in the due diligence process and make the sale of the business more problematic. That lack of proper structure makes an otherwise valuable business less valuable commercially. Or, suppose a business owner dies and the surviving spouse requests immediate payment in full for that business owner’s share? Without proper planning and legal documents in place, that event could propel a successful business into bankruptcy. Or, suppose the business owners fight? Without legal documents spelling out the details of the relationships, these disputes are often nastier, take much more time to resolve, and involve considerably more expense and legal fees than if the potential scenario had been addressed properly at the inception of the business.
Me: If someone has "set it up" themselves - can they come to an attorney…say you and your team to review and fix? Or is it best to start all over?
SLR: Like any good lawyer, I will answer that with a “It depends!” We look at each scenario individually. Some entities we fix. And for others, we advise the business owners to dissolve the improperly formed entity and start over again.
So it there ya have it – no more do it yourself lawyering ok? The next time you think about a "do it yourself" business activity hit the pause button and look at the possible long term expense. Then ask yourself, "Is it worth losing it all?"
Debbie Page Whitlock is a business coach and leading authority on cash flow for women entrepreneurs, and writes on all things related to creating sustainable, scalable and potentially salable businesses and other useful bits of business wisdom she’s acquired on her 20 year entrepreneurial odyssey.