“Do I really need lawyers?” This may sound like a philosophical question. In fact, a famous quote from William Shakespeare’s Henry VI, Part 2, Act IV, Scene 2 is: “let’s kill all the lawyers.” Without diving into the literary side of the actual meaning of this quote and putting the joking aside, most people generally agree that in the United States and many other countries, lawyers do play a vital role in many situations. The puzzling question for most people is: “when do I need a lawyer?”
Most people’s impression is that the only time they need lawyers is when they have no choice – i.e., anyone facing criminal charges or being sued or being investigated. Most businesses tend to avoid involving lawyers in their transactions or daily operations for one commonly known reason – lawyers are expensive.
This attitude towards lawyers is understandable and we are sympathetic. However, what most people fail to realize is that in order to be successful in their business, they must know the rules of the game in that industry and how to play the game well. The key to master the game quickly and successfully is through the right lawyers because their job is to help their clients know and play the game day in and day out.
The successful major players in each industry know this secret. It is not just about winning cases in a litigation situation. In fact, it is too late to wait until the litigation stage. Having the right lawyers in transactions can be the difference between having the deal done with appropriate mitigation of risks or seriously interrupting the entire deal process. Sadly, most of these interruptions are done on a level that is not even detectable by business teams if they do not have the right lawyers on their side.
People who do not understand the importance of having the right lawyers on their side can put themselves in a tremendous disadvantage in the marketplace.
Does this mean that people who don’t have a big legal budget will fail in the game? The typical lawyer answer is, “it depends.” It depends if you tackle the question of when you need a lawyer head on. If you only have a small legal budget, it would be more important for you to know when you should spend legal fees and in what type of situation.
We have a simple approach to help our clients answering the question of “when do I need a lawyer?” Just remember GMC-D. What does this acronym mean?
Gis for GIANT – Do you need a Giant to represent you in this situation in the marketplace?
The right lawyers and law firm can be your Giant because they give you the credibility in the marketplace and can protect you from being bullied by bigger players in negotiations and transactions. One of the typical situations would be when a smaller company or a regional company or a foreign company is conducting a transaction with a national large institution or a major lender.
M is for Money (and Lives) – Are you dealing with someone else’s money or lives?
If you are raising funding from other people and investing their money, you are in a high risk business. If your business (or you are investing in a business) providing products or services in the healthcare industry or dealing with other people’s lives, you are in a high risk business.
When you are in a high risk business, it is more likely that your business is subject to rigid and complicated regulations by federal, state and/or local governments. High risk business also means that it is more prone to being sued. The consequences of not being in compliance can mean facing criminal investigation and charges against your company and/or you individually.
From our past experiences as lawyers representing individuals and companies, we have seen many horrible situations from individuals who did not understand this risk. In one situation, a foreign company invested $7 million in a healthcare related company without engaging any lawyers to conduct legal due diligence or reviewing any investment documents. A few years later through business disputes with other shareholders, they realized that the company was not in compliance with certain federal regulations in receiving governmental payments in relation to healthcare services. When lawyers were finally involved, the client realized they were facing the possibility of a fine of approximately $300 million by the federal government. It was a mess and engaging lawyers to deal with the mess was extremely costly at the end.
We are not trying to scare you with this example, but it is important for you to get a flavor of the seriousness of the consequences. It is not a joke. Many of these horrible situations could be avoided if they had involved the right lawyers in the beginning with manageable legal fees.
C is for Challenged – Can you be challenged by governmental officials or third parties concerning your current involvement or action? Or are you being challenged by governmental officials or third parties?
What we meant by “challenged” is whether you can face (or are facing) formal legal proceedings. Most common areas that are vulnerable to be challenged are: taxes, estate planning, real estate records and filings, ownership interests in businesses, and any other areas that require legal formality and procedures.
A typical example is in the area of taxes. This is not just about filing taxes properly, but also how you structure the ownership of your company and the flow of money within your company. If the structure is not carefully designed, there can be unexpected tax consequences, and if the taxes do not properly reflect the company’s structure, you can be challenged by the IRS or other governmental agencies. Considering engaging the right tax lawyers and professionals in structuring your company and tax filings can avoid being challenged in the future by the IRS or other governmental agencies.
D is for Domino Effects – Will your current action (or inaction) cause domino effects to your business in the future?
An example of this is in acquiring real estate properties. When you acquire a property, you should not only think about the management and operation of the property, but you should also think about the sale of the property. Most real estate owners expect to make money at the exit of the property. However, if you do not address all of the legal and title issues that may have come with the property at the time of acquisition, or even worse, if you do not know those issues, this may have a domino effect as to how you can expand, lease, manage, and sell your property in the future after you own the property.
Having the right lawyers to assist you in planning your action and recognize potential domino effects could be the key to your success in your venture.
Lawyers are not people you should avoid. Contrarily, they are part of the resources and tools that you should have in your toolbox to help you to achieve your goals. It all depends on if you know when you need to open your toolbox to use that tool and how to manage them.
Visit us on www.sowplatform.com for more articles on how to manage lawyers and legal services.