Legal Maintenance Critical for Health of Small Businesses

Legal Maintenance Critical for Health of Small Businesses
*As appeared on MyLegal.com on January 21, 2010
By Ed Lubbers, Esq.

Many small business owners in today’s New Economy are struggling to stay afloat. Every cost is scrutinized and every penny is pinched. But while cutting as many corners as possible may seem like the right thing to do when times are tough, some things, like the legal health of your business, should not be ignored.

In fact, maintenance of your company can significantly save your firm money and complications down the road. For example, it is critical to form a corporate entity if you don’t already have one. There are several corporate entities to choose from, but the most commonly formed entities are the S-Corporation and the Limited Liability Company (LLC). If properly formed and maintained, S-Corporations and LLCs offer protection to owners from the company’s liabilities.

Additionally, companies in most states have to have a Registered Agent. This is either an individual or a company/firm that will accept service of process on your company’s behalf and will receive any required filings from the Secretary of State. If you are unsure whether your state requires a Registered Agent, contact your Secretary of State’s office.

You can also find out whether your company is in good standing through your Secretary of State. If your company isn’t in good standing, it’s often due to failure to file your business’ annual list, which can be done by updating the records and paying a fee to the Secretary of State.

You’ll also want to ensure you maintain company records and accounts in accordance with the governing documents and follow the procedures set forth in your operating documents. This is especially important when your firm has multiple partners and/or investors.

And finally, it’s important to keep business and personal accounts separate from each other. Combining the two is a tax preparation nightmare and can prove disastrous if your company is audited.

While the above – which is not a complete list of items to address but provides a good starting point – can be done by small business owners themselves, I suggest working with your attorney to ensure all steps are done properly and to further discuss other ways to maintain the legal health of your business.

Too often, small business owners will only contact their attorney when a problem arises, which can end up costing that business much more than if they had maintained ongoing, preventive legal representation all along. Simply put, seemingly small business operation errors can lead to costly lawsuits under the “right” circumstances.

In today’s New Economy, it’s time to start thinking differently about attorneys. Your attorney can play a large role in the success of your business. If money is tight, find an attorney or law firm that specializes in working with small businesses and is willing to work within your budget.

For example, at a typical rate of $400 per hour, an attorney can be costly even before you get to actual solutions, especially when your legal issue needs addressing immediately. Law firms nationally are recognizing this as a primary reason why small businesses are canceling their legal services altogether and, in response, are restructuring billing practices, establishing flat rates for services and creating custom packages based on their clients’ needs. This allows clients to receive affordable legal services year-round in a consistent and trusted environment.

If you are a small business owner and have questions regarding maintenance of your corporate entity, seek the advice of an attorney who practices in the area of corporate/business law.

Ed Lubbers is the founder and partner with Las Vegas-based law firm The Lubbers Law Group. For more information on The Lubbers Law Group, or to speak with the firm’s attorneys, call 702-257-7575 or visit www.lubberslaw.com.