Top Legal Tips for Businesses
Consultants Need Protection
If you have a consulting firm, you must use several methods to protect yourself from unnecessary liability.
First, you should be incorporated. This principle is firmly established as true. Be sure to also acquire E + O (Errors and Omissions) insurance. Create good systems and procedures to provide an excellent work product to your customer. Lastly, use a contract for all your work.
You must include these issues in your contract or you will face severe financial risk if your customer claims you failed to submit adequate work (this would be called negligent work, same as a doctor or lawyer).
Top Issues for Service Providers
- No consequential damages
- IP ownership
- Good recitation of services (SOW)
- Warranty
- Indemnities
- Remedies
- Confidentiality
You Have a Large Past Due from a Customer
If you incorporate the past due into a Promissory Note you have vastly improved your ability to collect. After doing this, the customer no longer has any defenses related to your performance. In other words, they can't now say you performed poorly, negligently or that you were in breach of the contract. Plus, you can add an attorney's fees clause entitling you to attorneys fees if you have to go to Court. You don't have the right to collect attorneys' fees without a contract which says you can. Again, another improvement that results from the Promissory Note.
Purchase Orders Will Protect You
If you don't use a Purchase Order with your customers you will not have key protections to help you get what you are owed when the other business does not live up to their end of the bargain. The Purchase Order should include key provisions such as: a specific description of the product or service you are selling, the warranty, deadlines, responsibility for incorrect delivered products and payment of attorneys' fees if you have to sue your client.
No one wants to be in a lawsuit, but I was just able to collect 100% of our amount due and my client's attorneys' fees without a fight because we had an attorneys' fees clause in the documentation. An attorneys' fees clause only needs to be one sentence.
Vendors should use Purchase Orders, too- even if the customer submits a PO to you first. Just send back your standard form PO (with the attorneys' fees clause in it). And it would be best to have the other side sign your form.
So, add these needed clauses soon- you will be glad you did.
I can explain this if you need help.
How Contracts Help You
Your Contracts should contain clearly expressed language of what you have the right to receive (a "right") and what the other side must give you (an "obligation")- and vice versa. An example would be where you have the right to receive 1000 widgets if you pay $1000.
Be sure that all the rights and obligations of both sides are clearly recited in the contract. Then the contract should be signed. Many parties exchange agreements where the agreements are signed by fax or scanned and sent by email. While you should be careful in doing this, agreement signatures exchanged in this way may be enforceable. Check with a corporate law legal specialist.
Can an email and not a full contract be nevertheless enforceable? It depends, but maybe. If you try this approach, be sure to include all relevant details- parties, price, time, place, product description, and payment date are critical. A good lawyer can help you write a short, practical form of Agreement often for $1000 or less- depending on the deal.
One more tip- add to the agreement what one side or the other does not receive so as to avoid future disputes. Let's say you are a tennis racquet maker and you give to a sales rep organization the right to call on all tennis pro shops in Illinois. If this does not include mass retailers (for example, Wal-Mart), say so in the contract. Then, carefully define what is a "mass retailer". You could include criteria such as store square footage size, a minimum number of national locations, or you could name the retailers. Use precise language to clearly explain the deal.
Pursuing New Revenue
On May 13th, the Wall Street Journal published an article on how lawyers are helping companies "sniff out new revenue" (titled Company Lawyers Sniff Out Revenue). To me, this has always been my job, so this article doesn't tell me anything new. But, now that Fortune 100 companies have given these initiatives program names such as "Affirmative Recovery" - which is used by the Ford Motor Company- the WSJ deems this news.
It's not really news. This is our job and we can help advise you how to recover money from unpaid debts, damages, and insufficient payments from suppliers, insurers, and service providers who have failed your or caused you wrong. These Fortune 100 programs use methods and tools to identify claims not known to senior managers. But, at your small to medium-sized business you know of each claim, thus identification is not the problem.
The problem is finding a great lawyer who will help you recover your money. In March of 2011, we recovered 100% of a client's debt PLUS 100% of their attorney's fees. So, we know how to do this.
Protect Your Personal Assets
Sometimes, in spite of your best efforts to run a great business, the business might fail. And, while you might have followed all the proper rules to maintain your corporate shield, the business creditors may neverthelesssue you. This happens all the time.
Be sure to protect your personal assets against this problem. The number one most valuable opportunity to do this is to title your residence in Illinois properly. Under the right circumstances, a married couple can title their primary personal residence in "tenancy by the entireties" and the business creditors will not be able to seize any value from your home ownership. There are a number of caveats here but this is a good strategy to protect yourself in case your business fails.
It is best to have your real estate titled this way before your busienss fails, so act now.
