Do small businesses need lawyers?
Having advised and coached scores of entrepreneurs and business operators from several countries around the world, I've been struck by two things: the challenges they face are practically the same regardless of where they operate; and some of their most taxing problems could have been avoided if they had got expert legal and financial advice early and throughout their journey.
A few weeks ago, a devastated entrepreneur contacted me for help to assist with a litany of woes engulfing him after a failed business venture. Let's call him Michael.
He had partnered with a long-time friend to launch what they believed would be the ticket to their dreams of financial
and professional freedom and prosperity.
His partner was the ideator and innovator and Michael was the financial and operational muscle of the business. They didn't seek legal counsel before starting business and had no contract between them.
The story in a nutshell is that the business was terribly undercapitalised, the partners overestimated their ability to penetrate the market, and while they bickered over strategy and operations, the business racked up millions in losses.
Meanwhile, two of their trusted employees copied their business model, strategy and stole some key customers.
Michael is now on the verge of losing the property he used to secure the personal loan he took from the bank to fund the business. To make matters worse, other than the bank, he owes several other creditors, his reputation and credit score have taken a severe beating and his family is now totally reliant on his wife's modest salary.
Needless to say, it's no easy feat to offer direction and hope to a man whose ego has been crushed, confidence shaken and stressed to the point that he's lost nearly 20 pounds in a few short weeks.
Much of the advice I gave him was outlined in my column of October 6, 2013 - 'How to rebound from business failure'.
I also shared various opportunities for him to earn an income using his skills and talents and working from a simple home office. Earning is critical to working one's way out of debt.
Michael's story makes a compelling case in support of entrepreneurs needing experienced lawyers who can provide sound legal advice to protect themselves and safeguard their businesses. Michael's fortunes might have been different if he had:
1. Got legal advice before entering a partnership;
2. Had a lawyer prepare a partnership agreement that outlines the business relationship, partner obligations, how the partnership will treat business failure, debts, etc;
3. Properly booked and recorded the loans he made to the business, instead of treating the loans as shareholder equity;
4. Proper contracts in place with customers and suppliers, instead of vague agreements downloaded from the internet that have no relevance to our locale or laws;
5. Received legal counsel about the risks of personally guaranteeing a loan;
6. Been properly informed about Jamaica's outdated bankruptcy law and how it punishes failure and makes criminals out of risk-taking entrepreneurs;
7. Received legal counsel on intellectual property ownership and protection; and
8.Made trusted employees sign disclosure and non-compete agreements.
It's said that everyone hates lawyers until they need one. I'm not saying that lawyers are always good for business or that all are created equal, but in many cases, they can spare you the drama of courthouse and stressful legal woes.
Last year, I wrote an open
letter to the General Legal Council regarding the problem of MSMEs having limited access to affordable legal
services and suggested how they could assist. Here's an extract from my letter:
"In 2011, while on an entrepreneurship development tour sponsored by the United States State Department, I learned of a valuable programme in Washington, DC, in which lawyers receive continuing legal education credits for providing legal assistance to community-based non-profit organisations and 'small-business entrepreneurs' serving low-income
communities or who are
"The Community Economic Development Project, as it is called, offers legal counsel to low-income tenant associations as well as legal assistance for current and aspiring business owners in areas such as business formation, contracts, taxation, leases, employment law, and others.
"The project has been very successful in improving access to legal services for residents of poor communities and struggling micro entrepreneurs who learn how to navigate legal issues which may impede the growth and resilience of their businesses.
"It is well known that some of our micro businesses are hindered by their inability to afford legal and accounting services. It is also known that Jamaica
desperately needs a boom in micro, small and medium-size businesses to spur real economic growth.
"We are likely to benefit tremendously from the implementation of a local CEDP, and the new continuing legal education rules provide a timely opportunity to explore this."
There has been no response to my recommendation, but I'm sure many lawyers would agree that it would be a cost-effective, impactful and rewarding way to earn some of their continuing legal education credits.
I have also put this proposal to the Jamaican Bar Association and remain hopeful that they will consider it seriously.
n Yaneek Page is an entrepreneur and trainer in entrepreneurship and workforce innovation. Email: email@example.com