Hire the best lawyers
Take the time, do the research. Solicit referrals from your network, and ask prospective attorneys for references. Do what it takes to retain the best legal eagle you can afford, a skilled business analyst who delivers practical solutions, as opposed to theory. Experience, efficiency, and quality count more than an hourly rate. If Lawyer A takes three hours to prepare a contract, and Lawyer B takes one hour at twice A’s hourly rate—and does it better—well, do the math.
Our plan to start our company depended on purchasing the franchise rights to three Shell Oil service stations that we would turn into tire stores that sold gasoline. Well, Shell tried to block approval of our franchise rights in order to keep Don and me in the fold. We looked around for an attorney and found Minnesota’s former securities commissioner, who had authored the very laws governing franchises and dealerships that were in play. Case closed.
Read the fine print
Decision-makers sign countless contracts. From equipment leases and supplier agreements to strategic alliances and employment pacts, don’t just flip to the last page and sign. It’s your job to spot the fox in the henhouse. Certainly, legalese induces sleep, kind of like flipping through a medical journal. Power through and read it anyway. Highlight what you don’t understand.
My longtime corporate attorney once reviewed an office lease for another client that allocated $4,500 for tenant improvements. That was one crucial zero less than the $45,000 the client had been promised. Fortunately, the client had thoroughly briefed the attorney on every detail before feeding him the contract. An ounce of prevention saved the guy forty grand in pain. Also, make sure that important contracts address your worst-case scenarios— and comfortable solutions for when (not if) one of them occurs.
What happens, for instance, to your volume discount if a supplier runs out of merchandise during your busiest month? What happens if you’re strategic- alliance partner files to break up with you and claims your technology that they’ve shared is now theirs? So many agreements are stitched together in the eleventh hour, but even then—especially then—examine it word by word. A few extra hours prior to signature will avoid contentious renegotiations, court, and steep legal fees.
Choose the most favorable business entity status
Most small businesses benefit from selecting Subchapter S Corporation or Limited Liability Company (LLC) status. They offer the owner the liability protection of a C Corporation and the pass-through tax advantages of sole proprietorships and partnerships. That said, state law governs the formation of business entities, so consult a good CPA or corporate attorney to help select what’s right for you.
It’s the simplest, most inexpensive business entity to form and operate. Profits are not double-taxed. Closing the business is easy. No separate tax return is required; simply attach a Schedule C form to your personal tax return.