by Tom Makeig, a lawyer who serves entrepreneurs

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Thomas H. Makeig, with offices in Fairfield, Iowa, is a 1981 alumnus of New York University School of Law and is admitted to the practice of law in Iowa and New York. This blog does not offer legal advice, which requires confidential personal communication with a lawyer. NOTICE TO THE PUBLIC: The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. This disclosure is required by rule of the Supreme Court of Iowa.

Wednesday, October 7, 2009

Q: What to do first? A: (a) hire a lawyer; (b) kill all the lawyers.

The answer, (a) or (b), depends on who you ask.  In Shakespeare's Henry VI, Part 2, a conspirator - imagining a utopian future once his faction comes to power - suggests, "The first thing we do, let's kill all the lawyers." The line was a winner with Elizabethan audiences.

If you ask Ellen Rozen writing in The New York Times Business Section, the answer is (a). Rozen's article makes a succinct case for putting the retention of counsel at the top of a new business owner's to-do list:

Step 1 in Starting a Small Business: Hire a Lawyer

When do you really need a lawyer? Despite the proliferation of both self-help books and Internet advice, when starting a business even the most sophisticated of businesspeople find ... that they need an individual lawyer to guide them through the most basic of decisions as well as the more complicated ones, like financing and property issues.
[T]he founders should consider the structure of the business — corporation or partnership. The structure chosen may depend on whether the entrepreneur expects to have outside investors in addition to friends and family members, and whether the client needs to limit liability while having the tax benefits of the gains and losses from the business, Mr. Gersz said.

Additionally, an entrepreneur should also consider whether there are key contracts needed to conduct business. Those ... can range from an agreement with a co-owner, a sales representative or an outsider, like a vendor or important client.

The business owner also should think about any intellectual property assets that will be used by the new company. At a minimum, product or company names should be researched online first, even though a lawyer should ultimately perform a trademark search. The owner must also think about how to protect other assets — designs or processes, for example — when starting up. While it may be simpler to contribute the assets to the business, Mr. Walsh said that licensing them to the business could be a better option, because “you can maintain some control over use of the invention.”

Two other related issues that most entrepreneurs overlook are exit strategies and succession.

My answer is a little different from Ms. Rozen's. Over the years I have found that new business owners' most immediate and costly mistakes arise from inadequate accounting and financial controls, so for a first priority I vote for retaining an accountant and bookkeeper to set up and manage your accounting system.  Once that's done, or as your accounting is being organized, then hire (not kill) the lawyer, for all the reasons Ms. Rozen suggests.