Hiring a General Counsel for a Small Business

A small business is a type of business that is owned and operated privately, with a relatively low volume of sales and a small number of employees. Although U.S. small business standards vary by state, as well as on an industry-by-industry business, small businesses typically have less than 500 employees for manufacturing industries and make less than $7 million in annual income for non-manufacturing industries.

Small businesses are especially popular due to their ease of operation and because certain tax deductions for small businesses are commonly available. In general, small businesses commonly operate as a corporation, partnership, or sole proprietorship.

A small business general counsel, also commonly referred to as an in-house counsel, is a business attorney that handles the legal matters for the small business that hires them. Typically, a small business may wish to hire and retain the services of a small business general counsel in order to assist them with the legal operations of their business. Large businesses, such as businesses that have more than 500 employees may wish to hire multiple in-house counsel to assist with the legal issues surrounding the operation of a business.

Business law is the area of law that regulates the conduct of people, merchants, and businesses who are engaged in trade, sales, and commerce. Examples of business law regulations include environmental regulations, real estate regulation, and food safety laws. Most of what constitutes business law is consumer protection laws, contract laws, and intellectual property laws.

Business laws are commonly associated with very distinct legal issues, such as contract violations. For example, transactions between businesses and with customers frequently involve some sort of contract, and legal issues frequently arise in connection with the legal terms of that contract. Further, a breach of contract can cause significant losses for either party to the contract. As such, a small business general counsel plays an important role in drafting, reviewing, and enforcing business contracts.

In addition to contract issues, other common business law legal issues that a small business general counsel may handle include:

• Advertising and marketing disputes and violations;
• Unfair competition issues;
• Legal issues surrounding starting a new business;
• Legal issues surrounding transferring or terminating a business;
• Consumer complaints; and
• Protection of a business’ intellectual property and trade secrets.

Do I Need to Hire a General Counsel Right Away?

As mentioned above, one benefit of hiring a general counsel right away for a small business or startup is that a small business attorney can assist in the initial formation process of the business. Although it is not necessary to hire a legal counsel for small businesses right away, an attorney can assist with drafting formation documents for the business, assist with drafting the legal documents necessary to form a business, and ensure that the business complies with all local laws at the time of formation.

However, not every small business or startup will be able to hire a small business general counsel right away. Generally this is because not every business will have enough income or funds to warrant hiring a general counsel right away to assist them with legal issues surrounding the operation of a business. Instead, a business may choose to retain the services of an attorney to complete a state task, such as drafting business formation documents or the company operating agreement.

It is important to note that the laws which govern small businesses address license requirements related to the type of activity that the small business entity engages in. Failure to meet the legal requirements for small businesses can result in penalties such as fines, jail time, or a revocation of operation privileges. As such, if there are any licensing requirements related to the operation of the small business, retaining an attorney may be necessary for the operation of the business to ensure compliance with local and federal laws.

When Would Be an Ideal Time to Hire a General Counsel?

As mentioned above, the most ideal time to hire a general counsel is prior to the formation of the business itself. This is because a general counsel can ensure that the business is properly formed, and has a properly drafted business formation and operating agreement that can help to lessen and address future legal issues that may arise concerning the operation of the business.

However, hiring a general counsel prior to the formation of the business is not always possible. As such, the following is a list of times in which retaining a general counsel may be in the best interests of the small business:

• At any time before the business becomes public, if the business is going to become a publicly traded company or plans on doing an initial public offering (“IPO”);
• If the business is planning on doing a merger or acquisition
  • An in-house counsel will be able to communicate with all of the parties involved in the merger or acquisition and sort out any legal issues as they arise; and/or
• If the business is experiencing rapid growth, such as the employees growing exponentially to more than 100 employees, or if the business is making more than $1 million in annual income.

What Should I Look For When Hiring in-House Counsel?

When a small business is looking to hire an in-house attorney, there are many different things in which the business should examine prior to retaining legal counsel. The most obvious thing that a small business should examine is whether or not they can afford to hire a general counsel. If a small business does not have the funds necessary to hire an in-house counsel, then they should consider either moving forward without the assistance of an attorney or securing the funds necessary to consult with an attorney.

If a small business has the funds necessary to secure the services of a small business attorney, the following characteristics or skills may be relevant in choosing the right attorney:

• Prior Experience: An attorney’s prior experience in representing small businesses in legal disputes and business formation is one of the most important characteristics a small business should consider when hiring an attorney.
  • Prior experience by an attorney helps ensure that the attorney is able to handle various legal issues that may arise in the operation of a small business, and helps ensure that they are able to operate efficiently having handled similar issues in the past;
• Educational Background: A small business should also consider hiring an in-house counsel that has an educational background in the subject in which the small business operates.
  • For example, if the small business needs assistance with working with the United States Patent and Trademark Office (“USPTO”), having an educational background in the subject matter that the business operates within is necessary to effectively execute and maintain the business’ patents and intellectual property; and
• Ability to Communicate: Another characteristic a small business should look for is a general counsel that can effectively communicate. This is because a general counsel will often need to explain legal issues and their recommendations in lay terms to employees at all levels, including the CFO and CEO of the company.

Do I Need an Attorney to Hire a General Counsel?

As can be seen, hiring a general counsel is often necessary in the operation of many small businesses. As such, it is often in a small business’ best interest to consult with a small business lawyer for assistance with any legal issues or disputes involving the operation of the small business.

An experienced commercial attorney can help the business understand its legal rights and options according to the specific state small business laws, and will also be able to represent the business in court, as needed, should any legal issues arise.