By Michael Hanks, Esq.
The only factor applicable to all business enterprises is the inevitability of change, whether in the form of growth, shifting markets, regulatory changes or changes in life situations of the owners and employees. Changes encountered by a business have not only economic components, but legal components as well. The forces of change that affect a business create both current and future problems and opportunities. Management’s objective has to be to anticipate and respond to changes in a positive way, and to meet legal challenges head on.
Just as regular medical checkups are recommended, it is likewise advisable for the business owner or manager to undergo a regular legal checkup by an experienced attorney.
The goal of the checkup. The goal of the checkup is primarily defensive. The attorney and the business owner, through a systematic evaluation attempt to predict and head-off future legal problems and ensure that the business meets its legal obligations with respect to its employees and others.
An underused resource. Partly because the concept has not been adequately promoted by the legal profession, partly because of business owners’ fear of attorney’s fees and partly through ignorance, the practice of regular legal checkups has not penetrated to the small and medium sized business level. Unfortunately, small and medium sized businesses are typically the ones that lack access to regular legal counsel, either in-house or outside retained counsel. Accordingly, they are the ones that will most benefit from a regular review by outside counsel. The business owner can also discuss potential concerns regarding liability issues, review insurance coverage for adequacy and in general brainstorm regarding where the company is and where it should be at various points in its life. I am convinced that prudent business owners should make a legal checkup an essential part of their annual management strategy. I am also convinced that business attorneys should more actively promote the practice in order to better service their clients.
Who needs a review? The size of the entity is less significant than the nature of its business in determining which businesses will benefit from an annual legal checkup. Even sole proprietors face an alarming array of requirements and demands on their businesses. However, it is true that the larger a business is, the more necessary legal checkups become.
What will we talk about? The purpose of a legal checkup is to review the status of the company in a systematic manner to enable the attorney to evaluate strengths and weaknesses in its legal framework; recommend any legal procedures that may be necessary; and, respond to or anticipate changes. It is also permits the attorney to educate the client regarding changes in the law affecting his business during the previous year and reconnect with the client on a personal level. Corporations can use the annual review for the purpose of preparing for annual directors’ and shareholders’ meetings (or preparing minutes for directors’ meetings in small companies).
The lawyer’s business perspective. Most experienced business attorneys have encountered all manners of legal problems affecting businesses in one form or another. This exposure to real life business problems and their solutions can heighten not only the attorney’s legal acumen, but his business acumen as well. The attorney can often times bring a perspective on business conditions that inside management lacks, and the value of the checkup can be further enhanced in this manner.
Long term planning and the question of succession. However, just as important as the defensive function, a legal checkup can help promote long term planning including issues relating to succession. It can also discuss such things as valuation of the business for owner buy-sell purposes, the advisability of procuring insurance to fund buy-sell arrangements between owners and similar types of issues which are addressed by visionary management, but too often neglected by many businesses who would benefit from it.
The question of cost. One positive aspect of a legal checkup is the ability to budget for the cost in advance. You should inquire of your attorney whether he offers such a service, and if so, what its initial cost would be. The business owner retains control over whether additional legal projects are undertaken. However, knowing that certain legal steps are recommended can permit management to budget for and address them in the upcoming year. Properly conducted, a legal checkup should typically require two to three hours at most for the initial consultation, which would translate into a bill of between $500 and $750. The meeting should be preceded by completion of a questionnaire by the client and review by the attorney prior to the meeting. This will give the attorney background and historical information which will permit him to better focus the discussion during the meeting.
Conclusion. Prudent management causes itself to be critically analyzed on a regular basis, and seeks to respond to changes in the marketplace in advance and in a comprehensive manner. Legal checkups can facilitate proper management and are recommendable in almost every situation.
To speak directly with Attorney Michael Hanks about a business, real estate, estate planning, elder law or prenuptial agreement matter, contact the Law Offices of Michael Hanks at (916) 635-0302.