When to Hire Counsel

If your business could potentially cause injury to people, things, or property, you should hire an attorney before selling your product/service. Not only will you want to ensure your product/service does not harm others, but injuring another can result in direct catastrophic liability to you (even if you are incorporated), and could even lead to criminal prosecution. It simply makes sense to retain counsel when safety can be at issue. It is also wise to obtain an appropriate insurance policy, and your insurer can assist you in evaluating the safety risk of your business.

Few business owners ever believe their biggest transactions could result in loss or failure, especially if it is with someone they like or trust. However, the big transactions are the ones that you have the most to lose, and thus represent one of the most important times you should retain qualified counsel. Sometimes these big transactions are for the sale of good/services, and sometimes they are for large investments in resources or for property leases. Getting into a large transaction is usually a whole lot easier and cheaper than hiring counsel to get out of it (or keeping the other party in it).

Another factor to consider in thinking about hiring counsel is when money is tight is to look at your total exposure if the deal fails. If your greatest potential loss in the event the deal falls through is significant, then hiring counsel to help with the transaction is probably a wise idea. This is true whether the amount of money you could lose is great, or if the loss would represent a large percentage of your business. For new businesses, the risk here is usually located in their real estate lease or with startup loans. A real estate lease means considerable financial exposure because a large amount of money will be paid over a long period of time under a sizable number of conditions and obligations. It can also contain dangerous personal guarantees that you will want reviewed, as can personal guarantees on loans. Some loan contracts also contain cognovits, which are very risky clauses for borrowers.

If your business model is selling something illegal in your area, you would probably benefit from knowing that early in your business’ life. We are not talking about drugs.  You could be inadvertently failing to provide proper disclosures that makes each transaction illegal.  For example, gyms are requires to provide specific language in each contract or they are rescindable indefinitely into the future.  A class action challenging each small transaction would obviously be devastating.  If your business relies on multiple small transactions, it would be wise to ensure those comply with any technical code.

If your business model sells goods or services that are used by people for household, family, or personal purposes, then you should talk with qualified counsel. Consumer laws cover every kind of supplier you can imagine, including car dealers, door-to-door salesman, debt collectors, retail stores, telesales, tax preparers, and others. These kinds of laws almost always include provisions where you must pay for the cost of the consumer’s lawyer if they sue you and win. Talk to a lawyer before selling to consumer good or service.