How to Hire an Attorney
Hiring a good lawyer is crucial to any successful business. Here's everything you need to find, interview, and hire the best.
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There are two professionals every business will need early on:an accountant and a lawyer. The reasons for hiring an accountantare pretty obvious--you need someone to help you set up your"chart of accounts," review your numbers periodically,and prepare all of your necessary federal, state and local taxreturns. The reason for hiring a business attorney may not,however, be so apparent. A good business attorney will providevital assistance in almost every aspect of your business, frombasic zoning compliance and copyright and trademark advice toformal business incorporation and lawsuits and liability. First,some general rules about dealing with lawyers:
- If you are being sued, it's too late. Most smallbusinesses put off hiring a lawyer until the sheriff is standing atthe door serving them with a summons. Bad mistake. The time to hookup with a good business lawyer is before you are sued. Once youhave been served with a summons and complaint, it's toolate--the problem has already occurred, and it's just aquestion of how much you will have to pay (in court costs,attorneys' fees, settlements and other expenses) to get theproblem resolved.
America's judicial system is a lot like a RoachMotel--it's easy to get into court, but very difficult to getout once you've been "trapped." Most lawyers agreethat while nobody likes to pay attorneys' fees for anything(heck, let's let our hair down--nobody likes paying or dealingwith lawyers, period), but the fee a lawyer will charge to keep youout of trouble is only a small fraction of the fee a lawyer willcharge to get you out of trouble once it's happened.
- Big firm or small firm? Generally speaking, the largerthe law firm, the greater the overhead, therefore the higher thehourly rates you will be expected to pay. Still, larger firms havea number of advantages over smaller ones. Over the past 20 years,lawyers have become incredibly specialized. If you use a solopractitioner or small firm as your lawyer(s), it's likely thatthey will not have all the skills you may need to grow yourbusiness. I don't know of any solo practitioner, and very fewsmall firms (under 10 lawyers) that could handle your lawsuits,negotiate your lease of office or retail space, file a patent ortrademark, draft a software license agreement, advise you onterminating a disruptive employee, and oversee your corporateannual meeting. Sooner or later, these "generalists" willhave to refer you out to specialists, and you will find yourselfdealing with two or three (or even more) attorneys.
While larger firms are more expensive to deal with, they havetwo significant advantages: 1) they usually have all the legalskills you need "under one roof," and 2) they have a lotof clout in the local, regional and (perhaps) national legalcommunity. A nasty letter from a "powerhouse" law firmwith offices in 30 states is a lot more intimidating than a nastyletter from a solo practitioner who is not admitted to practice inthe defendant's state. Also, being connected with a large,well-established law firm may have intangible benefits--they may bewilling to introduce you to financing sources or use their name asa reference when seeking partnership arrangements. Certainly if yourun a fast-growing entrepreneurial company that plans to go public(or sell out to a big company) some day, you would need to workwith lawyers whose names are recognized in the investment bankingand venture capital communities.
Types of Attorneys
Like doctors, lawyers are becoming increasingly specialized.Someone who does mostly wills, house closings and other"non-business" matters is probably not a good fit foryour business. At the very least, you will need the following setsof skills. The more skills reside in the same human being, thebetter!
1. Contracts. You will need a lawyer who can understandyour business quickly; prepare the standard form contracts you willneed with customers, clients and suppliers; and help you respond tocontracts that other people will want you to sign.
2. Business organizations. You will need a lawyer who canhelp you decide whether a corporation or limited liability company(LLC) is the better way to organize your business, and prepare thenecessary paperwork.
3. Real estate. Leases of commercial space--such asoffices and retail stores--are highly complex and are alwaysdrafted to benefit the landlord. Because they tend to be"printed form" documents, you may be tempted to thinkthey are not negotiable. Not so. Your attorney should have astandard "tenant's addendum," containing provisionsthat benefit you, that can be added to the printed form leasedocument.
4. Taxes and licenses. Although your accountant willprepare and file your business tax returns each year, your lawyershould know how to register your business for federal and state taxidentification numbers, and understand the tax consequences of themore basic business transactions in which your business willengage.
5. Intellectual property. If you are in a media, designor other creative-type business, it is certainly a "plus"if your lawyer can help you register your products and services forfederal trademark and copyright protection. Generally, though,these tasks are performed by specialists who do nothing but"intellectual property" legal work. If your lawyer sayshe or she "specializes in small businesses," then he orshe should have a close working relationship with one or moreintellectual property specialist.
What to Ask When Interviewing Attorneys
Interviewing potential attorneys is a crucial part of theselection process. This is where you'll find out if they'rea good match for your business. Here are some questions you shouldask:
- Are you experienced? Don't be afraid to ask directquestions about a lawyer's experience. If you know you want toincorporate your business, for example, ask if he or she has everhandled an incorporation.
- Are you well-connected? Your business attorney should besomething of a legal "internist"--one who can diagnoseyour problem, perform any "minor surgery" that may beneeded, and refer you to local specialists for "majorsurgery" if needed. No lawyer can possibly know everythingabout every area of law. If your business has specialized legalneeds (a graphic designer, for example, may need someone who isfamiliar with copyright laws), your attorney should either befamiliar with that special area or have a working relationship withsomeone who is. You shouldn't have to go scrounging for a newlawyer each time a different type of legal problem comes up.
- Do you have other clients in my industry? Your attorneyshould be somewhat familiar with your industry and its legalenvironment. If not, he or she should be willing to learn the insand outs of it. Scan your candidate's bookshelf or magazinerack for copies of the same journals and professional literaturethat you read. Be wary, however, of attorneys who represent one ormore of your competitors. While the legal code of ethics (yes,there is one, believe it or not) requires that your lawyer keepeverything you tell him or her strictly confidential, you do notwant to risk an accidental leak of sensitive information to acompetitor.
- Are you a good teacher? Your attorney should be willingto take the time to educate you and your staff about the legalenvironment of your business. He or she should tell you what thelaw says and explain how it affects the way you do business so thatyou can spot problems well in advance. The right lawyer willdistribute such freebies as newsletters or memoranda that describerecent developments in the law affecting your business.
- Are you a finder, a minder or a grinder? Nearly everylaw firm has three types of lawyer. The "finder" scoutsfor business and brings in new clients; the "minder"takes on new clients and makes sure existing ones are happy; the"grinder" does the clients' work. Your attorneyshould be a combination of a "minder" and a"grinder." If you sense that the lawyer you are talkingto is not the one who will actually be doing your work, ask to meetthe "grinder," and be sure you are comfortable with himor her.
- Will you be flexible in your billing? Because there iscurrently a "glut" of lawyers, with far too manypracticing in most geographic locales, lawyers are in a position tohave to negotiate their fees as never before, and it is definitelya "buyer's market." Still, there are limits--unlikethe personal injury lawyers who advertise on TV, business lawyersalmost always will not work for a "contingency fee,"payable only if your legal work is completed to yoursatisfaction.
Most lawyers will charge a flat one-time fee for routinematters, such as forming a corporation or LLC, but will notvolunteer a flat fee unless you ask for it. Be sure to ask if theflat fee includes disbursements (the lawyer's out-of-pocketexpenses, such as filing fees and overnight courier charges), andwhen the flat fee is expected to be paid. Many attorneys requirepayment of a flat fee upfront, so that they can cover theirout-of-pocket expenses. You should always ask to "holdback" 10 to 20 percent of a flat fee, though, in the event thelawyer doesn't do the job well.
Lawyers will be reluctant to quote flat fees if the matterinvolves litigation or negotiations with third parties. The reasonfor this is bluntly stated by a lawyer friend of mine: "Eventhough it's a transaction I've done dozens of times, if theother side's lawyer turns out to be a blithering idiot whowants to fight over every comma and semicolon in the contracts,then I can't control the amount of time I will be putting intothe matter, and will end up losing money if I quote a flatfee." In such situations, you will have to pay thelawyer's hourly rate. You should always ask for a writtenestimate of the amount of time involved, and advance notice ifcircumstances occur that will cause the lawyer to exceed his or herestimate.
If a lawyer asks you for a retainer or deposit against futurefees, make sure the money will be used and not held indefinitely inescrow, and that the lawyer commits to return any unused portion ofthe retainer if the deal fails to close for any reason. You shouldbe suspicious of any lawyer who offers to take an ownershipinterest in your business in lieu of a fee.
Questions to Ask Yourself Before Hiring an Attorney
- Is this person really a frustrated businessperson disguisedas a lawyer? Some lawyers get tired of being on the outsidelooking in when it comes to business dealings. Such a lawyer mayattempt to second-guess your business judgment. Be wary of a lawyerwho takes too keen an interest in the nonlegal aspects of yourwork.
- Does this person communicate well? J. P. Morgan oncesaid, "I do not pay my lawyers to tell me what I cannot do,but to tell me how to do what I want to do." The right lawyerfor your business will not respond to your questions with a simple"That's OK" or "No, you can't do that,"but will outline all your available options and tell you what otherbusinesses in your situation normally do.
- Are the offices conveniently located? You will need tovisit your attorney frequently, especially in your first few yearsin business. You should not have to waste a day traveling to andfrom the nearest city each time you need legal advice. When indoubt, choose a lawyer close to home.
- Do I like this person? Don't forget to follow yourinstincts and feelings. You should be able to communicate openlyand freely with your attorney at all times. If you feel you cannottrust a particular lawyer or you believe the two of you havedifferent perspectives, keep looking. Just remember that AllyMcBeal is not reality: good looks and a dynamic personality are notas important in a lawyer as accuracy, thoroughness, intelligence,the willingness to work hard for you and attention to detail. As aformer client once told me: "My father always said, 'Nevertrust a lawyer who has 20/20 vision and wears Armani.' I choseyou as my lawyer because you look like you work for a living."The right lawyer for your business will take that as acompliment.
For many entrepreneurs, the idea of consulting a lawyer conjuresup frightening visions of skyrocketing legal bills. Whilethere's no denying that lawyers are expensive, the good news isthere are more ways than ever to keep a lid on costs. Start bylearning about the various ways lawyers bill their time:
- Hourly or per diem rate. Most attorneys bill by thehour. If travel is involved, they may bill by the day.
- Flat fee. Some attorneys suggest a flat fee for certainroutine matters, such as reviewing a contract or closing aloan.
- Monthly retainer. If you anticipate a lot of routinequestions, one option is a monthly fee that entitles you to all theroutine legal advice you need.
- Contingent fee. For lawsuits or other complex matters,lawyers often work on a contingency basis. This means that if theysucceed, they receive a percentage of the proceeds--usually between25 percent and 40 percent. If they fail, they receive onlyout-of-pocket expenses.
- Value billing. Some law firms bill at a higher rate onbusiness matters if the attorneys obtain a favorable result, suchas negotiating a contract that saves the client thousands ofdollars. Try to avoid lawyers who use this method, which is alsosometimes called "partial contingency."
If you think one method will work better for you than another,don't hesitate to bring it up with the attorney; many willoffer flexible arrangements to meet your needs. When you hire anattorney, draw up an agreement (called an "engagementletter") detailing the billing method. If more than oneattorney works on your file, make sure you specify the hourly ratefor each individual so you aren't charged $200 an hour forlegal work done by an associate who only charges $75. Thisagreement should also specify what expenses you're expected toreimburse. Some attorneys expect to be reimbursed for meals,secretarial overtime, postage and photocopies, which many peopleconsider the costs of doing business. If an unexpected charge comesup, will your attorney call you for authorization? Agree toreimburse only reasonable and necessary out-of-pocket expenses.
No matter what type of billing method your attorney uses, hereare some steps you can take to control legal costs:
- Have the attorney estimate the cost of each matter inwriting, so you can decide whether it's worth pursuing. Ifthe bill comes in over the estimate, ask why. Some attorneys alsooffer "caps," guaranteeing in writing the maximum cost ofa particular service. This helps you budget and gives you morecertainty than just getting an estimate.
- Learn what increments of time the firm uses to calculate itsbill. Attorneys keep track of their time in increments as shortas six minutes or as long as half an hour. Will a five-minute phonecall cost you $50?
- Request monthly, itemized bills. Some lawyers wait untila bill gets large before sending an invoice. Ask for monthlyinvoices instead, and review them. The most obvious red flag isexcessive fees; this means too many people--or the wrongpeople--are working on your file. It's also possible you may bemistakenly billed for work done for another client, so review yourinvoices carefully.
- See if you can negotiate prompt-payment discounts.Request that your bill be discounted if you pay within 30 days ofyour invoice date. A 5-percent discount on legal fees can addthousands of dollars to your yearly bottom line.
- Be prepared. Before you meet with or call your lawyer,have the necessary documents with you and know exactly what youwant to discuss. Fax needed documents ahead of time so yourattorney doesn't have to read them during the conference andcan instead get right down to business. And refrain from callingyour attorney 100 times a day.
- Meet with your lawyer regularly. At first glance, thismay not seem like a good way to keep costs down, but you'll beamazed at how much it reduces the endless rounds of phone tag thatplague busy entrepreneurs and attorneys. More important, a monthlyfive- or 10-minute meeting (even by phone) can save you substantialsums by nipping small legal problems in the bud before they have achance to grow.
Legal Savings Strategy section excerpted from Start YourOwn Business.
CliffEnnico is a syndicated columnist, author and host of the PBS TVseries MoneyHunt. This column is no substitute for legal,tax or financial advice, which can be furnished only by a qualifiedprofessional licensed in your state. Copyright 2004 Clifford R.Ennico. Distributed by Creators Syndicate Inc.