Legal services are an important consideration for any business owner, but especially for small business owners, who often face a number of legal hurdles. Protecting the owner's personal assets from lawsuits against the business, ensuring protection for the business against discrimination, wrongful termination, and sexual harassment lawsuits, and handling employee contracts, copyright claims, and incorporation are just a few of the legal issues that commonly face small business owners.
The high costs of retaining a lawyer often make it seem as if competent legal services are out of reach of most small business owners. But there are reasonably priced methods of obtaining such services, such as pre-paid plans and legal software. In addition, experts emphasize the dangers of entering into legal agreements without first obtaining advice from a qualified attorney. In many cases, this attempt to cut corners can turn small problems into big problems for small business owners. "Perhaps your tax structure is not to your best advantage, or you are not adequately protected from liability," Charles Poling noted in the New Mexico Business Journal. "If you're in a regulated business, you might run afoul of the law simply because you haven't gotten educated by your lawyer. Failing to consult with a securities or financial lawyer when you're raising capital can cause serious problems."
The type of legal services a small business should obtain varies with the size and age of the business. "Exactly what type of lawyer you need depends on what business you're in, and what stage it's at," Poling wrote. "A general business lawyer can help you as day-to-day questions come up, reviewing contracts and tax questions. But for more complicated matters, you might need a specialist…. Just starting up? Find someone who specializes in forming corporations or partnerships. Going public? Find a securities lawyer. Other specialties include environmental law, banking, patenting, copyrighting, medicine, nonprofit corporations, employment law, and so on."
According to Michael Barrier in Success, the best way to find a good attorney is by getting referrals from people you trust, especially those with similar legal needs. Before signing a retainer, small business owners should inquire about the attorney's experience, charges, and potential conflicts of interest. It may also be helpful to check your insurance policy, because certain litigation expenses may be covered.
Perhaps the most cost-effective way for small business owners to obtain legal advice is through a pre-paid legal services plan. These plans provide companies with affordable access to legal advice and attorney's services for one low, monthly fee. Pre-paid firms are being compared to health maintenance organizations (HMOs) because they offer a wide range of services at one low, set price.
"This concept is where health insurance was in the '50s or where HMOs were 15 years ago," said Nashville attorney Jack Bufkin in an article in the Memphis Business Journal. "Prior to the '50s, people could go to the hospital and pay for it out of their pocket. You can't do that anymore. Today, people are expected to pay for the cost of a lawyer out of their pocket, but it's quickly getting to the point where most people can't afford the cost of going and getting a lawyer."
This pre-paid concept was pioneered by Caldwell Legal, U.S.A. in 1967. It is still one of the largest pre-paid firms. It offers Caldwell's Business Protector Program, which is available in all 50 states. At each Caldwell field office, attorneys provide telephone consultation, document review, letter, and other services, all for $20 per month. The plan includes unlimited hours of toll-free telephone consultation. That seems like a lot of service for very little money, but research done by Caldwell shows that 73 percent of legal problems can be solved with a single phone call. If more extensive services are needed, additional fees are applied as they are accrued.
Another company that has become one of the largest and best-known pre-paid legal firms was founded in 1972 in Ada, Oklahoma. Pre-Paid Legal Services, Inc. has set up a program that essentially allows small business owners to purchase "legal insurance," much like they would purchase health insurance. The program is called the Pre-Paid Small Business Legal Defense Plan and is available only to for-profit companies that have fewer than 20 employees and $2 million or less in gross income.
Pre-Paid contracts with one law firm in each state in which it does business, usually a very well regarded firm that might otherwise be inaccessible to small business owners. Just like with health insurance, the small businesses pay a monthly premium, usually less than $100 per month. For that fee, Pre-Paid clients are guaranteed many services, including 10 primary benefits. Other legal firms offering similar services typically provide a package that includes some combination of the following:
The primary advantage associated with pre-paid legal services is savings. "The greatest benefit of a pre-paid legal plan is that it provides a way to reduce the cost of legal services for small business owners while providing greater access to the legal system," said Bufkin. "Small business people are being hammered by legal issues. The time is right to offer a product like this." For example, a typical pre-paid plan might charge $125 per hour for attorney's fees, plus the monthly premium, which can range from $40 to $100 per month. Without the plan, the attorney's fees skyrocket to $180 to $350 per hour, with a retainer fee of several thousand dollars often demanded up front.
Quality service is another promise of most pre-paid plans. For example, one plan requires its attorneys to have a minimum of 15 years service, experience in business law, a favorable rating from Martindale-Hubbel (the rating service of the American Bar Association), and a clean record that shows no indication of ethical or malpractice claims against the attorney. Of course, these services vary in quality, just as attorneys as a group vary in quality. Small business owners should do their research before signing up with a service. There are new ones joining the industry each year. For example, the Lawyers Assurance Group of America maintains 20 franchises throughout the United States.
Another benefit of pre-paid plans is their size. Because they pool together hundreds of small businesses, they instantly become one of the largest clients of whatever firm handles the plan's account. This is a huge benefit for small business owners. One owner on his or her own will be a very small part of any law firm's business. As one business owner in Ohio said of his former legal firm, "I felt I wasn't important enough to them." As part of the pre-paid plan, however, the small business becomes one part of a very important client that the law firm wants to keep happy to ensure continued business. Like HMOs, pre-paid plans offer collective bargaining power, as lawyers find it worth their while to offer low cost services to plan members because of the high volume of business that is generated.
Pre-paid plans also make it easier for small businesses to practice preventive law instead of reacting to crises. Without the plan, a business owner is more likely to take his or her chances in any given situation and hope that no legal problems arise. This is because asking for legal advice can be so expensive. The plan, however, makes advice readily available and encourages owners to make use of it so that small problems do not become big problems.
The most important thing to look for is the number and type of services offered at a reduced rate as part of the plan. The number of services might be lower than what you expect, so make sure the plan has what you need. Also find out what the plan charges for services that are not covered as part of the basic plan. A set fee for additional work may be cheaper in the long run than receiving a discount on the firm's "usual fee" for such services.
Other factors to consider include:
Small business owners can also gain expertise and reduce risks and costs by utilizing one of the legal software packages that are designed just for small businesses. McGraw-Hill offers the Small Business Lawyer, a CD-ROM that contains more than 320 customized legal forms and agreements that cover such things as power of attorney, partnerships, loans, real estate, leases, and the sale of business assets. Once the software is installed, the business owner enters information about his business just once, after which all of the forms can be generated using that information.
A CD-ROM from Nolo Press called Small Business Legal Pro Deluxe includes the full text of four books published by Nolo, each targeted at the small business owner. The books, which are fully searchable, address hundreds of legal situations that are common to small businesses. Fifty forms are also included on the disc. Another CD-ROM from Nolo called Law on the Net provides descriptions of and links to thousands of resources available on the Internet. The disc is updated quarterly. Observers note that the demand for this subject, coupled with the ever-changing legal landscape and continued advances in computer technology, are likely to ensure that an expanded list of titles will be available to choose from for some time to come. However, it is often a good idea to have off-the-shelf forms reviewed by a practicing attorney to make sure they are adequate for your particular industry, state, or deal.
Another potential source of legal forms and advice is the Internet. A number of Web sites exist that provide directories of attorneys, sources for legal research, samples of various types of forms and documents, and even free legal advice in chat rooms. For example, the American Bar Association site provides the addresses of state and local bar associations and lawyer referral services at www.abanet.org/referral . Martindale-Hubbel also sponsors an online "lawyer locator" at http://lawyer.martindale.com/marhub . The Web site www.uslaw.com offers overviews of the law as it affects small business and also provides a directory of affiliated lawyers.
But according to Carol Ebbinghouse in Searcher, small business owners should approach online legal services with caution. Obtaining legal advice online makes it difficult to establish a recognized attorney-client relationship, which may leave a small business without the protection of confidentiality and with no recourse in cases of malpractice or conflict of interest. Another potential pitfall is that online attorneys may not be licensed in the business owner's state. They may even be law students or otherwise lack the necessary experience or qualifications to provide good advice. For those who do use online legal services, Ebbinghouse recommends making sure the site is in compliance with Internet privacy and security protocols, reviewing all disclaimers and conditions, and double checking the advice received.
Bahls, Steven C. and Jane Easter Bahls. "Cover Charge: Pre-paid Plans Put Routine Legal Services Within Your Budget." Entrepreneur. August 1996.
Bahls and Bahls. "Got It Covered?" Entrepreneur. February 1998.
Barrier, Michael. "The Maw of the Law." Success. October 2000.
Bell, David M.M. "Ethics and the Internet: In a Chaotic Dot-Com World, Internet Use Presents Many Practical, Ethical, and Regulatory Questions for Lawyers." California Bar Journal. July 2000.
Ebbinghouse, Carol. "Medical and Legal Misinformation on the Internet." Searcher. October 2000.
Perenson, Melissa J. "Navigating the Law." PC Magazine. December 17, 1996.
Poling, Charles. "Is Your Lawyer Doing Right for You?" New Mexico Business Journal. March 1997.
"Pre-Paid Legal Services Announces New Venture to Benefit Small Business Owners." PR Newswire. May 21, 1997.
Sewell, Tom. "Pre-Paid Legal Services Offered to Small Businesses." Memphis Business Journal. May 26, 1997.
Taylor, Dennis. "Hear Ye! These Legal Services Won't Leave Firms Bankrupt." The Business Journal. September 30, 1996.
Comment about this article, ask questions, or add new information about this topic: