If you've read this blog for some time, you know that I've written often about what happens when business partners can no longer get along. But other things can happen to break up a partnership that should also be considered when setting up a business venture. For example, what if one of you dies, becomes incapacitated, or suddenly is in a divorce that may cause your partner's share of the business to be owned by his ex-spouse?
Buy-sell agreements are integral to the start of a new venture, but a well-drafted one should cover not only what happens when it is time to end the partnership, but also what happens if the unexpected occurs. Some of the issues a good buy-sell should cover are:
1. A provision allowing for a buyout of a deceased partner's share of the business (often using the funds from life insurance policies paid for by the business).
2. A provision requiring a forced sell-out of a partner's interest if that partner is convicted of certain wrongdoing (such as felony criminal convictions) or, if he is in a profession, loses his license.
3. Contractual provisions that restrict the shares of a partner that pass unintentionally to a third party (such as through death or divorce), so that the surviving partner does not have to make partnership decisions with this new, unchosen partner.
A well-written buy-sell contract can help you envision and solve many of a partnership's long-term possible problems before the partnership ever gets off the ground. If you're in North Carolina, and need help setting up a venture or entity, feel free to contact me for an appointment.
Minggu, 06 September 2009
Minggu, 30 Agustus 2009
Entrepeneurs and Adversity
More than a year now into the recession, and, for the first time in my career, having watched a largely suceessful clientele of entrepeneurs weather financial storms, I've learned that business people have handled this recession in different ways, some positive and some negative. In addition, in connection with my banking practice, I have seen other entrepeneurs deal head-on with the financial stress brought on by the recent financial downturn.
1. "Be good to the people on your way up the ladder 'cause you'll need them on the way down..." Lucky Dube, "The Way it Is." Some formerly successful people have not handled the downturn well--financially or psychologically. Perhaps they didn't save for the eventual rainy day, perhaps their business plan was too narrow to envision failure, or perhaps they had great plans, but bad timing. These people have fallen on hard times, and they're not handling it well. They're bitter at the system that they believe failed them. They're angry with the banks foreclosing on their properties and homes. And often, they wonder what has happened to many of the friends they used to have. Were these people just "fake friends" and hangars on? Maybe. But my law partner and I were joking about a particular entrepeneur in the national news who'd fallen on hard times: "What's the difference between the rich Mr. X and the poor Mr. X? The poor Mr. X is an S.O.B.!"
The point, reader, is not that poverty makes someone a worse person--it's that when a person who isn't friendly loses the thing that makes them powerful (wealth), they're still left with all their poor qualities.
2. The contrarian investor. In pure financial terms, some entrepeneurs have excelled in these down times. Yes, I watched them make wealth during headier times. But these individuals were not one-trick ponies: they weren't riding the "house-flipping" band wagon of the real estate boom, nor were they likely part of the dot-com craze a decade earlier (though they might have made money off of both). Instead, these individuals possessed something, by their raising, their genes, or some sort of gift that simply allows them to see what most of us cannot. These individuals have been able to find money-making opportunities in any economic climate, and have actually thrived.
3. The lesson learner. Most entrepeneurs--even the good ones--have still felt the pinch of this latest economic crisis, however. They're NOT making as much money as they once were--and it's not clear for some if they'll ever make that much money again any time soon. Though things are not going as well as they used to, these entrepeneurs are enduring, and are become better people for it.
Some of them have done well enough in the past that they're able to continue to survive off of their savings. Others have had to pare down their business operations--and their lifestyle. Some are even struggling with their finances, but are doing so honestly, contacting the banks, trying to work out solutions while being fair to those whom they owe. For these people, the economic recession has been a lesson. It has made them realize that even the most successful business can fail given the right climate, that even a wealthy man can lose his riches in certain circumstances. It has caused them to remember that money isn't an end-all, and that many of the characteristics that helped them first gain financial success--hard work, integrity, and thrifty living--will also help them weather the current financial storms.
This recession will fade one day, but others will likely come. Entrepeneurs, from a financial standpoint, will you have what it takes to withstand--and even financially thrive--in the next downturn? More importantly, will you have the integrity and character necessary to let you take on life's financial difficulties?
1. "Be good to the people on your way up the ladder 'cause you'll need them on the way down..." Lucky Dube, "The Way it Is." Some formerly successful people have not handled the downturn well--financially or psychologically. Perhaps they didn't save for the eventual rainy day, perhaps their business plan was too narrow to envision failure, or perhaps they had great plans, but bad timing. These people have fallen on hard times, and they're not handling it well. They're bitter at the system that they believe failed them. They're angry with the banks foreclosing on their properties and homes. And often, they wonder what has happened to many of the friends they used to have. Were these people just "fake friends" and hangars on? Maybe. But my law partner and I were joking about a particular entrepeneur in the national news who'd fallen on hard times: "What's the difference between the rich Mr. X and the poor Mr. X? The poor Mr. X is an S.O.B.!"
The point, reader, is not that poverty makes someone a worse person--it's that when a person who isn't friendly loses the thing that makes them powerful (wealth), they're still left with all their poor qualities.
2. The contrarian investor. In pure financial terms, some entrepeneurs have excelled in these down times. Yes, I watched them make wealth during headier times. But these individuals were not one-trick ponies: they weren't riding the "house-flipping" band wagon of the real estate boom, nor were they likely part of the dot-com craze a decade earlier (though they might have made money off of both). Instead, these individuals possessed something, by their raising, their genes, or some sort of gift that simply allows them to see what most of us cannot. These individuals have been able to find money-making opportunities in any economic climate, and have actually thrived.
3. The lesson learner. Most entrepeneurs--even the good ones--have still felt the pinch of this latest economic crisis, however. They're NOT making as much money as they once were--and it's not clear for some if they'll ever make that much money again any time soon. Though things are not going as well as they used to, these entrepeneurs are enduring, and are become better people for it.
Some of them have done well enough in the past that they're able to continue to survive off of their savings. Others have had to pare down their business operations--and their lifestyle. Some are even struggling with their finances, but are doing so honestly, contacting the banks, trying to work out solutions while being fair to those whom they owe. For these people, the economic recession has been a lesson. It has made them realize that even the most successful business can fail given the right climate, that even a wealthy man can lose his riches in certain circumstances. It has caused them to remember that money isn't an end-all, and that many of the characteristics that helped them first gain financial success--hard work, integrity, and thrifty living--will also help them weather the current financial storms.
This recession will fade one day, but others will likely come. Entrepeneurs, from a financial standpoint, will you have what it takes to withstand--and even financially thrive--in the next downturn? More importantly, will you have the integrity and character necessary to let you take on life's financial difficulties?
Minggu, 12 Juli 2009
Five things I did right as a lawyer
A couple posts ago, I wrote to aspiring lawyers about some of the things I did wrong, in an effort to help some of you avoid my mistakes in your careers and personal lives. This week, however, I'd like to suggest certain things that I did right--and I hope you'll consider doing them too.
1. I kept the Bar Exam in perspective. I wanted to write this before many of you take your Bar Exams. When I say that I kept the Bar in perspective, I don't mean that I didn't take it seriously. I also am not going to lie to you and act like that I didn't worry about whether I'd pass it or what I'd do if I flunked it. No, all of those feelings are natural. I'm talking literally about what I did in the days leading up to the Bar Exam.
This was my first--and hopefully only--time that I would take the exam, so I didn't have previous history to go on as to how to study for the Bar. However, I knew what had worked for me in law school for three years, and I had to trust myself, and my own abilities, that if I simply stuck with what worked, and used my tried and true methods of study, that I'd be ok. For me, that meant setting up study schedules, allotting a set number of days and hours to each potential subject, and after planning it out, simply sticking to the plan.
I also knew myself well enough to know that if I took myself off the plan, and focused on others, I would become unsure of myself, and also might psyche myself out mentally. When I was in Raleigh for the exam, some law school classmates were, during their lunch breaks, trying to study together and compare notes with their classmates as to how they answered certain questions. DO NOT DO THIS!!!! First, you've studied all summer; eat a leisurely lunch because that one hour isn't going to give you any advantage on the exam anyway. Second, you will inevitably discover that you and your classmates answered questions differently, leading you to question your own answer, which will not only drive you crazy, but it could seriously distract you in the final legs of your exam.
I stayed focus, I stuck with what had worked in the past, and--guess what? It worked again. I'd suggest you do the same.
2. I found a good mentoring law firm. When I worked as a law clerk in Madison, Georgia, a lawyer named Jim Winkler told me that wherever I tried to find a job, make sure to find a firm that would mentor me. I'd never thought of that before, but I thought that sounded like pretty good advice and, after having worked in the law profession for 11 years, I can confidently say that he passed on to me sage words. The quality of a lawyer you will become in your career will depend, in part, upon your first formative years. Regardless of what you're taught at law school, much of what you'll learn that molds you most will come after you start practicing. Too many firms (big, small, city or country), look at that new associate as a form of cheap labor, just a low-paid minion that can do lawyer work for less. You need to find someone who's willing to give you as much as you give them--someone who's willing to teach you not only how to do a good job, but how to be the best lawyer you can be. I've helped train a couple of associates, and I've really grown to appreciate how much time my senior partner invested in me.
It takes time to train someone from the ground up, to look at them not just as a wage laborer, but someone whom you want to help reach the best of his or her potential. In the short run, my firm could've trained me for six months, then had me out in the fields making money for them. And if they had, I'd probably be not much better ten years later than I was then. But instead, the partners invested effort into making me the best they thought I could be. I hope I can do that for other lawyers, and I suggest you find a firm that can teach you the same. I don't want to disparage lawyers straight out of school who open their own shop, but there's nothing to replace the mentoring of a senior member of the Bar.
3. I got a wide variety of experience when I started. Working in a small-town firm as a new associate, my senior partner let me get a taste of everything. I handled traffic tickets, simple divorces, wills, boundary line cases--just about anything I could imagine. While I have no desire to be a general practitioner, the variety of experience I got was invaluable, because it helped me in my current practice think from a wider perspective. I was involved in a case a couple years back involving a breach of contract, with co-counsel who represented a separate defendant. I sensed the Plaintiff was lying, and something smelled bad. I finally figured out that the Plaintiff, who'd represented himself to be a large real estate mogul, was committing loan fraud and was a sham. How did I figure it out? From my days closing real estate loans, I looked at the Plaintiff's figures, and could determine that his supposed real estate empire simply couldn't have worked.
Also, practicing in multiple areas of law taught me areas which I didn't like, but steered me to areas in which I found I had a knack. As a new lawyer, try not to get pigeon-holed. Your development may proceed slower than, say, the associate at the Big Law Firm who's funneled into its Egyptian Antiquities Law Department, but you'll be better for it in the end.
4. I focused first on becoming skilled, then on the money. Because my senior partner focused on making me skilled rather than pimping me out for money, I similarly focused on becoming the best I could be. Honestly, I didn't do poorly those first few years, but to the extent I have financial success now, it is because I put in the time in the salad days. Lawyers who are hired and are not well-mentored tend to also have a mentality about money early on, and try to find the quickest way to earn a buck. At some point, though, they will plateau, and not only be mediocre, but will in fact generate less income than if they'd focused more on their skills earlier.
5. I stuck with it when things got tough. Lots of lawyers coming out of school fantasize about working a couple years with someone, then going out on their own. Five years into my practice, I was one step away from leaving, having already found a building to lease, incorporated my practice, and even turned in my notice. However, I worked things out with my partners, and now am glad that we worked together to create a better firm. This is not to say that every lawyer should stay at his first job forever--I know that's not always possible. But remember, there is power in numbers. You'll often find that with lawyers, the whole is greater than the sum of the parts, and often, lawyers with large client bases lose some of their stability and prestige when they go on their own. Think hard before you do it.
That's enough lawyerly advice for now. According to my calculations, you have about two or three weeks left before the big day. You've had your study break, now get back to work. Good luck, you can do it!
1. I kept the Bar Exam in perspective. I wanted to write this before many of you take your Bar Exams. When I say that I kept the Bar in perspective, I don't mean that I didn't take it seriously. I also am not going to lie to you and act like that I didn't worry about whether I'd pass it or what I'd do if I flunked it. No, all of those feelings are natural. I'm talking literally about what I did in the days leading up to the Bar Exam.
This was my first--and hopefully only--time that I would take the exam, so I didn't have previous history to go on as to how to study for the Bar. However, I knew what had worked for me in law school for three years, and I had to trust myself, and my own abilities, that if I simply stuck with what worked, and used my tried and true methods of study, that I'd be ok. For me, that meant setting up study schedules, allotting a set number of days and hours to each potential subject, and after planning it out, simply sticking to the plan.
I also knew myself well enough to know that if I took myself off the plan, and focused on others, I would become unsure of myself, and also might psyche myself out mentally. When I was in Raleigh for the exam, some law school classmates were, during their lunch breaks, trying to study together and compare notes with their classmates as to how they answered certain questions. DO NOT DO THIS!!!! First, you've studied all summer; eat a leisurely lunch because that one hour isn't going to give you any advantage on the exam anyway. Second, you will inevitably discover that you and your classmates answered questions differently, leading you to question your own answer, which will not only drive you crazy, but it could seriously distract you in the final legs of your exam.
I stayed focus, I stuck with what had worked in the past, and--guess what? It worked again. I'd suggest you do the same.
2. I found a good mentoring law firm. When I worked as a law clerk in Madison, Georgia, a lawyer named Jim Winkler told me that wherever I tried to find a job, make sure to find a firm that would mentor me. I'd never thought of that before, but I thought that sounded like pretty good advice and, after having worked in the law profession for 11 years, I can confidently say that he passed on to me sage words. The quality of a lawyer you will become in your career will depend, in part, upon your first formative years. Regardless of what you're taught at law school, much of what you'll learn that molds you most will come after you start practicing. Too many firms (big, small, city or country), look at that new associate as a form of cheap labor, just a low-paid minion that can do lawyer work for less. You need to find someone who's willing to give you as much as you give them--someone who's willing to teach you not only how to do a good job, but how to be the best lawyer you can be. I've helped train a couple of associates, and I've really grown to appreciate how much time my senior partner invested in me.
It takes time to train someone from the ground up, to look at them not just as a wage laborer, but someone whom you want to help reach the best of his or her potential. In the short run, my firm could've trained me for six months, then had me out in the fields making money for them. And if they had, I'd probably be not much better ten years later than I was then. But instead, the partners invested effort into making me the best they thought I could be. I hope I can do that for other lawyers, and I suggest you find a firm that can teach you the same. I don't want to disparage lawyers straight out of school who open their own shop, but there's nothing to replace the mentoring of a senior member of the Bar.
3. I got a wide variety of experience when I started. Working in a small-town firm as a new associate, my senior partner let me get a taste of everything. I handled traffic tickets, simple divorces, wills, boundary line cases--just about anything I could imagine. While I have no desire to be a general practitioner, the variety of experience I got was invaluable, because it helped me in my current practice think from a wider perspective. I was involved in a case a couple years back involving a breach of contract, with co-counsel who represented a separate defendant. I sensed the Plaintiff was lying, and something smelled bad. I finally figured out that the Plaintiff, who'd represented himself to be a large real estate mogul, was committing loan fraud and was a sham. How did I figure it out? From my days closing real estate loans, I looked at the Plaintiff's figures, and could determine that his supposed real estate empire simply couldn't have worked.
Also, practicing in multiple areas of law taught me areas which I didn't like, but steered me to areas in which I found I had a knack. As a new lawyer, try not to get pigeon-holed. Your development may proceed slower than, say, the associate at the Big Law Firm who's funneled into its Egyptian Antiquities Law Department, but you'll be better for it in the end.
4. I focused first on becoming skilled, then on the money. Because my senior partner focused on making me skilled rather than pimping me out for money, I similarly focused on becoming the best I could be. Honestly, I didn't do poorly those first few years, but to the extent I have financial success now, it is because I put in the time in the salad days. Lawyers who are hired and are not well-mentored tend to also have a mentality about money early on, and try to find the quickest way to earn a buck. At some point, though, they will plateau, and not only be mediocre, but will in fact generate less income than if they'd focused more on their skills earlier.
5. I stuck with it when things got tough. Lots of lawyers coming out of school fantasize about working a couple years with someone, then going out on their own. Five years into my practice, I was one step away from leaving, having already found a building to lease, incorporated my practice, and even turned in my notice. However, I worked things out with my partners, and now am glad that we worked together to create a better firm. This is not to say that every lawyer should stay at his first job forever--I know that's not always possible. But remember, there is power in numbers. You'll often find that with lawyers, the whole is greater than the sum of the parts, and often, lawyers with large client bases lose some of their stability and prestige when they go on their own. Think hard before you do it.
That's enough lawyerly advice for now. According to my calculations, you have about two or three weeks left before the big day. You've had your study break, now get back to work. Good luck, you can do it!
Minggu, 14 Juni 2009
Business and Regulatory Confusion
In the overregulated and hyperlitigated society in which businesses now exist, businesses of all sizes are now struggling with new statutes and regulations, sometimes hastily written and poorly thought-out, and coming from different legislative bodies. As a result, well-meaning businesspeople cannot always abide by the law--despite their best efforts--because they're no longer sure what the law even is anymore.
In the first instance this week, a client of mine hired me to help him legally set up a franchise he was trying to create. He had a brilliant idea, he had a business plan, and he even had his first interested franchisee. All he needed to know was what laws to follow, for which reason he needed my advice.
Unfortunately for my client, however, the answer was not so simple. Starting at the state level, he learned he was subject to the North Carolina business opportunity laws, made to protect (legislators believe) potential franchisees who need to be protected from themselves. The business opportunity statutes outlined about four pages of information that needed to be contained in a franchise offering circular, which had to be provided to the potential franchise purchaser at least 48 hours prior to the person signing a contract.
The state laws, however, were the easy ones. We then researched the applicable federal rules, promulgated by not legislators but the Federal Trade Commission. Those regulations outlined more than 40 pages of information that needed to be contained in the franchise offering circular, which had to be provided to a potential buyer at least 14 days ahead of time.
Which rules apply? Well, all of them, and my job is to come up with something that assimilates all of the rules together. My client is a professional and a businessman, as are his potential purchasers, and all intelligent enough to make their own business decisions about whether to enter into a franchise agreement. Both our state and federal governments, however, have driven up transaction costs by dozens of pages of requirements for a franchisor before he even enters into a contract. He has to provide, in essence, potential purchasers a background history of himself, his criminal past, his civil litigation past, company financials and even personal bankruptcies. The state, in addition, requires the franchisor to register and, in certain cases, to be bonded.
In a second instance this week, an institutional client needed help in determining what rules needed to be followed in response to new state and federal regulations that had been hastily promulgated to resolve a perceived crisis. Sitting around the table were various board members of this client company, the vice president and president of the company, and the company's compliance officer. The federal regulations contained certain requirements, the state statutes required others. Some at our table argued that the state statutes ruled; some that the federal regulations preempted state law. Finally, after much research and talking to both state and federal regulators, we finally received the satisfactory answer we needed, but not without the employment of numerous man-hours and the stress of all involved who, despite their differing interpretations, were all working their hardest to have their company simply abide by the law.
It's a truism that we, as citizens, are presumed to know the law and that "ignorance of the law" is not a defense to a violation thereof. In this time of heightened government regulation, however, businesses (small ones especially, I fear) run the risk of violating laws because those laws have become so (1) conflicting; (2) multitudinous and (3) poorly written and hard to understand.
What can a business do to keep itself safe in these hyperregulatory times? Here are a few ideas:
1. Stay informed. If your business is part of an industry or trade association, stay abreast of all current developments. Read your industry association periodicals, attend "recent development" seminars sponsored by your industry, and, if necessary, call your industry association's attorney (every association should have one) to be updated on new laws and regulations that may affect your business.
2. If in doubt about the law, take the more conservative interpretation. Many businesses have, in the past, ventured into gray areas of law, especially when dealing with taxation issues. In the present environment, however, with a federal government full of anti-capitalist goons who are already suspicious of business, you have to be on the defensive. If you're not sure about the interpretation of a law, take the more conservative interpretation. At their worst, politicians are looking for scapegoats to punish, and "corporate America" is a current target. At their more innocent, politicians are looking for more sources of revenue. When it comes to taxes, you'd better believe they're going to take the more government-friendly interpretation of rules. When looking at violations, expect the government to be less friendly and to assault alleged violators with heavier fines, penalties and punishments--regardless of whether the violators even knew they were violating a law.
3. Have your attorneys more closely involved with regulatory review. It sounds self serving, but believe it or not, it gives me no pleasure to say that. I hate the idea that small businesses should keep a lawyer on retainer simply as part of their daily business in order to weave through an increasingly complicated morass of regulation. But in the current climate, stakes are too high not to understand laws affecting your industry. Have an attorney readily at hand who understands your business, one whom you can call if you have any questions. It's not cheap, but it's less expensive than hiring a lawyer to defend you when the government comes after your business for violating its laws.
Times are not easy. The economy is still struggling, and legislators are doing their misguided best to regulate the economy into health. In these times, businesses need to be at their most vigilant in following and understanding laws that affect them.
In the first instance this week, a client of mine hired me to help him legally set up a franchise he was trying to create. He had a brilliant idea, he had a business plan, and he even had his first interested franchisee. All he needed to know was what laws to follow, for which reason he needed my advice.
Unfortunately for my client, however, the answer was not so simple. Starting at the state level, he learned he was subject to the North Carolina business opportunity laws, made to protect (legislators believe) potential franchisees who need to be protected from themselves. The business opportunity statutes outlined about four pages of information that needed to be contained in a franchise offering circular, which had to be provided to the potential franchise purchaser at least 48 hours prior to the person signing a contract.
The state laws, however, were the easy ones. We then researched the applicable federal rules, promulgated by not legislators but the Federal Trade Commission. Those regulations outlined more than 40 pages of information that needed to be contained in the franchise offering circular, which had to be provided to a potential buyer at least 14 days ahead of time.
Which rules apply? Well, all of them, and my job is to come up with something that assimilates all of the rules together. My client is a professional and a businessman, as are his potential purchasers, and all intelligent enough to make their own business decisions about whether to enter into a franchise agreement. Both our state and federal governments, however, have driven up transaction costs by dozens of pages of requirements for a franchisor before he even enters into a contract. He has to provide, in essence, potential purchasers a background history of himself, his criminal past, his civil litigation past, company financials and even personal bankruptcies. The state, in addition, requires the franchisor to register and, in certain cases, to be bonded.
In a second instance this week, an institutional client needed help in determining what rules needed to be followed in response to new state and federal regulations that had been hastily promulgated to resolve a perceived crisis. Sitting around the table were various board members of this client company, the vice president and president of the company, and the company's compliance officer. The federal regulations contained certain requirements, the state statutes required others. Some at our table argued that the state statutes ruled; some that the federal regulations preempted state law. Finally, after much research and talking to both state and federal regulators, we finally received the satisfactory answer we needed, but not without the employment of numerous man-hours and the stress of all involved who, despite their differing interpretations, were all working their hardest to have their company simply abide by the law.
It's a truism that we, as citizens, are presumed to know the law and that "ignorance of the law" is not a defense to a violation thereof. In this time of heightened government regulation, however, businesses (small ones especially, I fear) run the risk of violating laws because those laws have become so (1) conflicting; (2) multitudinous and (3) poorly written and hard to understand.
What can a business do to keep itself safe in these hyperregulatory times? Here are a few ideas:
1. Stay informed. If your business is part of an industry or trade association, stay abreast of all current developments. Read your industry association periodicals, attend "recent development" seminars sponsored by your industry, and, if necessary, call your industry association's attorney (every association should have one) to be updated on new laws and regulations that may affect your business.
2. If in doubt about the law, take the more conservative interpretation. Many businesses have, in the past, ventured into gray areas of law, especially when dealing with taxation issues. In the present environment, however, with a federal government full of anti-capitalist goons who are already suspicious of business, you have to be on the defensive. If you're not sure about the interpretation of a law, take the more conservative interpretation. At their worst, politicians are looking for scapegoats to punish, and "corporate America" is a current target. At their more innocent, politicians are looking for more sources of revenue. When it comes to taxes, you'd better believe they're going to take the more government-friendly interpretation of rules. When looking at violations, expect the government to be less friendly and to assault alleged violators with heavier fines, penalties and punishments--regardless of whether the violators even knew they were violating a law.
3. Have your attorneys more closely involved with regulatory review. It sounds self serving, but believe it or not, it gives me no pleasure to say that. I hate the idea that small businesses should keep a lawyer on retainer simply as part of their daily business in order to weave through an increasingly complicated morass of regulation. But in the current climate, stakes are too high not to understand laws affecting your industry. Have an attorney readily at hand who understands your business, one whom you can call if you have any questions. It's not cheap, but it's less expensive than hiring a lawyer to defend you when the government comes after your business for violating its laws.
Times are not easy. The economy is still struggling, and legislators are doing their misguided best to regulate the economy into health. In these times, businesses need to be at their most vigilant in following and understanding laws that affect them.
Minggu, 31 Mei 2009
Five Things I Wished I'd Done Differently as a New Lawyer
I wanted to take a brief detour in this blog and write to new law graduates. Congratulations, you're a lawyer! Or not, because right now, though you've just earned your degree, you've not yet passed the all-important Bar--so near, yet so far! Though most of you are likely now preparing for the Bar exam, I thought I would share with you some of what I've learned in the past 11 years of practice.
Of course, you all know that in law school, and as new lawyers, there have been and will be scores of individuals imparting unsolicited advice, and now I join them. However, rather than specifically giving advice, I'll just share a little about my experiences as a new lawyer. Specifically, I'd like to share five things I wish I'd done a
little differently after passing the Bar. Of course, everyone's experience is different, and my perspective is colored by my own. I left school to work for what was initially a small, family-owned law firm in a small town in North Carolina, initially doing a general legal practice. I didn't go to work at a big city law corporation, or as an in-house counsel, or even as an assistant district attorney. All of those attorneys would have their own starting-out experiences that might differ from mine. Nevertheless, below are five things that I wished I'd done differently as a new lawyer.
1. I WOULD HAVE TAKEN TIME OFF BEFORE STARTING WORK.
When I took the North Carolina Bar in 1998, there was a period of approximately three to four weeks between taking the exam and finding out if I'd passed. I walked out of my examination room, got in my car, and went to the beach. But then, mere days later, I started my job and legal career for what likely would be the next four decades. To be fair, my employer didn't push me to start so soon--in fact, he frankly told me that he'd rather that I wait until I'd passed before starting, warning me that it would be very embarrassing if I started work and then had to quit because I'd failed the Bar. But I didn't listen to him, and started immediately. Part of it was that I was sick of being broke--I'd spent all summer as a 25-year-old man, living off my parents and their money, and I was ready for a paycheck. Plus, I'd worked for three years, and I was ready--chomping at the bit almost--to be an attorney. So, after a brief vacation at the beach, I began working during August 1998 as an "almost-lawyer"--going through training and learning my way, praying to God I passed the Bar, and working, always working.
What I should have done was what my boss suggested I do--simply take time off and enjoy myself until I'd passed the Bar in late August. Sure, I didn't have any money, but I was living at home for free--what did I need? I'd gone through four years of college, long preparatory courses to take the LSAT, three long years in law school, and a very difficult summer studying for the Bar. What was three weeks, after all of that?
More importantly, that time will likely have been the last time in my life--until retirement--that I would be able to take off three consecutive weeks from work. I could've spent a week at the beach, a week at home, and perhaps a week driving around the country (with a little money borrowed from my parents, of course). In any event, I could've lived and savored that time a little more.
Granted, in some states (such as Georgia, where my most of my classmates ended up), new graduates don't learn of the Bar results until around Thanksgiving, so practically, they can't simply vacate until the results come in. But they can take off some time. And for those of you who only have to wait a few weeks until passing the Bar, I would highly recommend that, if possible, you just enjoy yourself. Sure, you'll be nervous, as you await the results. But you can soak in all that you've recently accomplished and been through. And if you look at the odds, odds are, you're going to pass. Why not enjoy what may well be the last long vacation you take for decades?
2. I WOULD HAVE NOT TAKEN MYSELF SO SERIOUSLY.
In 1998, I'd just graduated from a high-tier law school. I'd studied the Bar--and I'd passed it. I was ready to set the world on fire! I suspect that most of my peers felt the same way. Coming into my new firm, I was ready to be ..... A LAWYER (trumpets sounding, please). At least, that was the music playing in my head.
I felt like I was a walking encyclopedia of the law, and was ready to take on any case or cause that came my way. I had my degree after all. I came in ready to show people how law should be practiced. Ok, maybe I didn't so clearly enunciate this 11 years ago, but at least that's how I acted. The truth of the matter--as most lawyers who've practiced a while will tell you--is that as a new lawyer I knew almost nothing. I'd learned a lot of cases, I'd learned how to research, but as a practical matter, law school didn't teach me or my classmates how to actually practice law on a daily basis. I had so much more to learn: about law, about how to treat people, and about how to be a good attorney.
Had I learned earlier on not to take myself so seriously (and I'm still learning this), I could've saved myself some grief. It doesn't matter that you're suddenly boss over a paralegal twice your age with half your education, and it doesn't matter that coming straight out of school you may be making more than her: truth is, she probably knows a heck of a lot more about day-to-day law than you do. Had I understood that more quickly instead of trying to show them what I knew, I'd have gotten along better with staff, and frankly learned a lot more in a shorter amount of time.
There is a biblical passage that, paraphrased, states the fear of the Lord is the beginning of wisdom. New lawyers, in your new career, the beginning of wisdom is to know how truly little you know, and how unimportant you are in the grand scheme of life. Paralegals, court officials, clerks--even bankers--will often know way more about the law than you do at the beginning. If you can keep this in mind, it will help you not take yourself so seriously. I learned this--but unfortunately not as quickly as I should have.
3. I WOULD HAVE NOT SPREAD MYSELF SO THIN IN MY PERSONAL LIFE.
When I first got out of school, I was so excited to regain some of the free time I'd lost in law school. I immediately tried to put that time to use. I picked up teaching a Sunday School class, volunteered at church events, and helped out some with my church's youth group. Of course, I did all of this after my 7 a.m. to 7 p.m. days at the office, often coming in on Saturdays as well to keep caught up. Still, it felt great to have all this extra time freed up from studying to, well, be productive. Eventually, however, it wore me down. I was a single guy, so I would get up, work out at 6:00 a.m., and, after working a long day, come home, fix whatever was easiest to put in a microwave, eat, watch a couple of hours of television, then go to bed to do it all over again. On some Fridays I'd help out with church functions. On Saturdays, I spent all day doing housework and yardwork--mowing my yard, ironing my dress shirts (!), and trying to manage my newly acquired home. On Sundays, I got up and taught Sunday School, always frustrated at the poor job I felt like I was doing. And then, on Sunday afternoon--sweet Sunday afternoons--for about three hours, I had a blissful period of rest, to nap, watch tv, or do nothing, before going back to church at night. Three sweet hours, out of the entire week, to simply do nothing. Of course, lots of times I couldn't enjoy that time because I was too worried about all the things I had to do on Monday.
New lawyers, it is very likely that your first few years of practice will be stressful, difficult, and involve long hours of work. That's just the unfortunate nature of the beast, the path you've chosen--at least for a while, as you hope to earn your stripes. Don't take on too much in the beginning with other obligations that you don't have to take on. In retrospect, perhaps I should've waited a while to be more active at church, so that I could've given it better attention. And I should've realized that, with home ownership, comes a lot of additional responsibility and work. Had I realized how much work a home entailed, I might have picked a house that had a smaller yard, or was newer and required less upkeep.
Speaking of my house.....
4. I WOULD HAVE NOT SPREAD MYSELF SO THIN FINANCIALLY.
That first paycheck I received as a lawyer was the biggest I'd ever held in my hand, but very quickly, I learned that it didn't go very far. I was actually pretty thrifty at first, and didn't waste my money. However, I subscribed to the prevailing wisdom of the time, which was to "buy as much house as you can afford." The thinking, at that time, was that if you bought more than just a beginner house, you could live in it for more years before wanting to upgrade. That part is true: ten years later, my wife and I are still living in my original bachelor house. On the other hand, though, by buying as much home as I could afford, I really spread myself thin financially.
I constantly worried about money, and lived on a very regimented budget. I worried about unforeseen expenses arising, and what I would do if a surprise house expense or medical expense came up. I had absolutely no discretionary spending money--I had $20 to spend for eating out in a week, and couldn't even budget for a movie! I couldn't even afford to take my dress shirts to the cleaners, which meant I spent every Saturday afternoon slowly ironing and starching French cuff dress shirts, eating up what precious free time I had.
If I'd simply bought a smaller, less expensive house, I wouldn't have been so financially bound. I could have saved up "rainy day" money for emergencies (thank God none came up during that first year). I could have gone on vacations with friends. I could have lived a little bit more.
5. I WOULD HAVE REEVALUATED MY LIFE AND PRACTICE EARLIER.
Most of us who enter the law practice have definite ideas of where we want our future to lead. In fact, we probably have had those ideas for some time. In college, we wanted to get into a good law school. In law school, we wanted to get a good job. Once we got that job, we then wanted to make partner, become the District Attorney, General Counsel, whatever. I'd had that focus going into my job.
But what I didn't do early on--that I wished I'd done--was to on a regular basis evaluate where I was in my practice, and where I really wanted to be. See the distinction? Instead of constantly asking myself, "How can I get more clients, a bigger salary, an equal partnership," I should have also been asking myself more soul-searching questions; questions like:
--Do I like the people for whom I'm working? (I did, and I still do);
--Do I like my particular area of law practice? (I did not, and didn't realize this until about six years into my practice);
--Is this what I'd hoped I'd be doing, when I was in law school?
--Do I want to be doing what I'm doing now twenty years from now?
--Are there better and different ways for me to do what I'm doing?
In my relentless search for all those things we lawyers want (success, however it is defined), I didn't, early on, ask myself these really important questions. Granted, as a new lawyer, your life is not likely to be a bed of roses. You don't get to name your hours, your practice area, or your salary. Hey, that's the game you and I have chosen to play, and you have to understand that in your first few years of law practice, life isn't going to always be easy. But what you shouldn't forget is that--for whatever reason you decided to practice law, not one of us said, "I want to go to law school so I can get out, be a lawyer, work a job and a practice I hate, and be miserable the rest of my life."
For five or six years, I walked around constantly stressed, harried, tired and worried--as a result of the practice I was in. It started innocuously enough, because I knew as a beginning lawyer that things would be tough. But as days turned into months, months then turned into years. I didn't stop to evaluate myself or where I was heading. I didn't ask myself why my stomach was tied in knots, why I lost my temper so much more quickly than before, or why I'd become a much different person than the one who'd entered law school.
Had I simply evaluated my life and my practice early on, I probably could have steered my path more quickly from a practice area that frankly was not for me, in the process, saving myself a few years of stress. Don't misunderstand me: your life as a new lawyer is NOT going to be easy. But don't let yourself fall into the trap of many lawyers, and let your career become one long period of stress and unhappiness. Evaluate yourself and your practice, at least on a yearly basis. Ask yourself some of the above questions!
New law grads, once again, I offer congratulations. Already, by getting this far, you really have accomplished something. You now stand before potentially fulfilling and lucrative legal careers, and I hope you can learn, more quickly than I, some of the lessons above.
Of course, you all know that in law school, and as new lawyers, there have been and will be scores of individuals imparting unsolicited advice, and now I join them. However, rather than specifically giving advice, I'll just share a little about my experiences as a new lawyer. Specifically, I'd like to share five things I wish I'd done a
little differently after passing the Bar. Of course, everyone's experience is different, and my perspective is colored by my own. I left school to work for what was initially a small, family-owned law firm in a small town in North Carolina, initially doing a general legal practice. I didn't go to work at a big city law corporation, or as an in-house counsel, or even as an assistant district attorney. All of those attorneys would have their own starting-out experiences that might differ from mine. Nevertheless, below are five things that I wished I'd done differently as a new lawyer.
1. I WOULD HAVE TAKEN TIME OFF BEFORE STARTING WORK.
When I took the North Carolina Bar in 1998, there was a period of approximately three to four weeks between taking the exam and finding out if I'd passed. I walked out of my examination room, got in my car, and went to the beach. But then, mere days later, I started my job and legal career for what likely would be the next four decades. To be fair, my employer didn't push me to start so soon--in fact, he frankly told me that he'd rather that I wait until I'd passed before starting, warning me that it would be very embarrassing if I started work and then had to quit because I'd failed the Bar. But I didn't listen to him, and started immediately. Part of it was that I was sick of being broke--I'd spent all summer as a 25-year-old man, living off my parents and their money, and I was ready for a paycheck. Plus, I'd worked for three years, and I was ready--chomping at the bit almost--to be an attorney. So, after a brief vacation at the beach, I began working during August 1998 as an "almost-lawyer"--going through training and learning my way, praying to God I passed the Bar, and working, always working.
What I should have done was what my boss suggested I do--simply take time off and enjoy myself until I'd passed the Bar in late August. Sure, I didn't have any money, but I was living at home for free--what did I need? I'd gone through four years of college, long preparatory courses to take the LSAT, three long years in law school, and a very difficult summer studying for the Bar. What was three weeks, after all of that?
More importantly, that time will likely have been the last time in my life--until retirement--that I would be able to take off three consecutive weeks from work. I could've spent a week at the beach, a week at home, and perhaps a week driving around the country (with a little money borrowed from my parents, of course). In any event, I could've lived and savored that time a little more.
Granted, in some states (such as Georgia, where my most of my classmates ended up), new graduates don't learn of the Bar results until around Thanksgiving, so practically, they can't simply vacate until the results come in. But they can take off some time. And for those of you who only have to wait a few weeks until passing the Bar, I would highly recommend that, if possible, you just enjoy yourself. Sure, you'll be nervous, as you await the results. But you can soak in all that you've recently accomplished and been through. And if you look at the odds, odds are, you're going to pass. Why not enjoy what may well be the last long vacation you take for decades?
2. I WOULD HAVE NOT TAKEN MYSELF SO SERIOUSLY.
In 1998, I'd just graduated from a high-tier law school. I'd studied the Bar--and I'd passed it. I was ready to set the world on fire! I suspect that most of my peers felt the same way. Coming into my new firm, I was ready to be ..... A LAWYER (trumpets sounding, please). At least, that was the music playing in my head.
I felt like I was a walking encyclopedia of the law, and was ready to take on any case or cause that came my way. I had my degree after all. I came in ready to show people how law should be practiced. Ok, maybe I didn't so clearly enunciate this 11 years ago, but at least that's how I acted. The truth of the matter--as most lawyers who've practiced a while will tell you--is that as a new lawyer I knew almost nothing. I'd learned a lot of cases, I'd learned how to research, but as a practical matter, law school didn't teach me or my classmates how to actually practice law on a daily basis. I had so much more to learn: about law, about how to treat people, and about how to be a good attorney.
Had I learned earlier on not to take myself so seriously (and I'm still learning this), I could've saved myself some grief. It doesn't matter that you're suddenly boss over a paralegal twice your age with half your education, and it doesn't matter that coming straight out of school you may be making more than her: truth is, she probably knows a heck of a lot more about day-to-day law than you do. Had I understood that more quickly instead of trying to show them what I knew, I'd have gotten along better with staff, and frankly learned a lot more in a shorter amount of time.
There is a biblical passage that, paraphrased, states the fear of the Lord is the beginning of wisdom. New lawyers, in your new career, the beginning of wisdom is to know how truly little you know, and how unimportant you are in the grand scheme of life. Paralegals, court officials, clerks--even bankers--will often know way more about the law than you do at the beginning. If you can keep this in mind, it will help you not take yourself so seriously. I learned this--but unfortunately not as quickly as I should have.
3. I WOULD HAVE NOT SPREAD MYSELF SO THIN IN MY PERSONAL LIFE.
When I first got out of school, I was so excited to regain some of the free time I'd lost in law school. I immediately tried to put that time to use. I picked up teaching a Sunday School class, volunteered at church events, and helped out some with my church's youth group. Of course, I did all of this after my 7 a.m. to 7 p.m. days at the office, often coming in on Saturdays as well to keep caught up. Still, it felt great to have all this extra time freed up from studying to, well, be productive. Eventually, however, it wore me down. I was a single guy, so I would get up, work out at 6:00 a.m., and, after working a long day, come home, fix whatever was easiest to put in a microwave, eat, watch a couple of hours of television, then go to bed to do it all over again. On some Fridays I'd help out with church functions. On Saturdays, I spent all day doing housework and yardwork--mowing my yard, ironing my dress shirts (!), and trying to manage my newly acquired home. On Sundays, I got up and taught Sunday School, always frustrated at the poor job I felt like I was doing. And then, on Sunday afternoon--sweet Sunday afternoons--for about three hours, I had a blissful period of rest, to nap, watch tv, or do nothing, before going back to church at night. Three sweet hours, out of the entire week, to simply do nothing. Of course, lots of times I couldn't enjoy that time because I was too worried about all the things I had to do on Monday.
New lawyers, it is very likely that your first few years of practice will be stressful, difficult, and involve long hours of work. That's just the unfortunate nature of the beast, the path you've chosen--at least for a while, as you hope to earn your stripes. Don't take on too much in the beginning with other obligations that you don't have to take on. In retrospect, perhaps I should've waited a while to be more active at church, so that I could've given it better attention. And I should've realized that, with home ownership, comes a lot of additional responsibility and work. Had I realized how much work a home entailed, I might have picked a house that had a smaller yard, or was newer and required less upkeep.
Speaking of my house.....
4. I WOULD HAVE NOT SPREAD MYSELF SO THIN FINANCIALLY.
That first paycheck I received as a lawyer was the biggest I'd ever held in my hand, but very quickly, I learned that it didn't go very far. I was actually pretty thrifty at first, and didn't waste my money. However, I subscribed to the prevailing wisdom of the time, which was to "buy as much house as you can afford." The thinking, at that time, was that if you bought more than just a beginner house, you could live in it for more years before wanting to upgrade. That part is true: ten years later, my wife and I are still living in my original bachelor house. On the other hand, though, by buying as much home as I could afford, I really spread myself thin financially.
I constantly worried about money, and lived on a very regimented budget. I worried about unforeseen expenses arising, and what I would do if a surprise house expense or medical expense came up. I had absolutely no discretionary spending money--I had $20 to spend for eating out in a week, and couldn't even budget for a movie! I couldn't even afford to take my dress shirts to the cleaners, which meant I spent every Saturday afternoon slowly ironing and starching French cuff dress shirts, eating up what precious free time I had.
If I'd simply bought a smaller, less expensive house, I wouldn't have been so financially bound. I could have saved up "rainy day" money for emergencies (thank God none came up during that first year). I could have gone on vacations with friends. I could have lived a little bit more.
5. I WOULD HAVE REEVALUATED MY LIFE AND PRACTICE EARLIER.
Most of us who enter the law practice have definite ideas of where we want our future to lead. In fact, we probably have had those ideas for some time. In college, we wanted to get into a good law school. In law school, we wanted to get a good job. Once we got that job, we then wanted to make partner, become the District Attorney, General Counsel, whatever. I'd had that focus going into my job.
But what I didn't do early on--that I wished I'd done--was to on a regular basis evaluate where I was in my practice, and where I really wanted to be. See the distinction? Instead of constantly asking myself, "How can I get more clients, a bigger salary, an equal partnership," I should have also been asking myself more soul-searching questions; questions like:
--Do I like the people for whom I'm working? (I did, and I still do);
--Do I like my particular area of law practice? (I did not, and didn't realize this until about six years into my practice);
--Is this what I'd hoped I'd be doing, when I was in law school?
--Do I want to be doing what I'm doing now twenty years from now?
--Are there better and different ways for me to do what I'm doing?
In my relentless search for all those things we lawyers want (success, however it is defined), I didn't, early on, ask myself these really important questions. Granted, as a new lawyer, your life is not likely to be a bed of roses. You don't get to name your hours, your practice area, or your salary. Hey, that's the game you and I have chosen to play, and you have to understand that in your first few years of law practice, life isn't going to always be easy. But what you shouldn't forget is that--for whatever reason you decided to practice law, not one of us said, "I want to go to law school so I can get out, be a lawyer, work a job and a practice I hate, and be miserable the rest of my life."
For five or six years, I walked around constantly stressed, harried, tired and worried--as a result of the practice I was in. It started innocuously enough, because I knew as a beginning lawyer that things would be tough. But as days turned into months, months then turned into years. I didn't stop to evaluate myself or where I was heading. I didn't ask myself why my stomach was tied in knots, why I lost my temper so much more quickly than before, or why I'd become a much different person than the one who'd entered law school.
Had I simply evaluated my life and my practice early on, I probably could have steered my path more quickly from a practice area that frankly was not for me, in the process, saving myself a few years of stress. Don't misunderstand me: your life as a new lawyer is NOT going to be easy. But don't let yourself fall into the trap of many lawyers, and let your career become one long period of stress and unhappiness. Evaluate yourself and your practice, at least on a yearly basis. Ask yourself some of the above questions!
New law grads, once again, I offer congratulations. Already, by getting this far, you really have accomplished something. You now stand before potentially fulfilling and lucrative legal careers, and I hope you can learn, more quickly than I, some of the lessons above.
Minggu, 26 April 2009
Small business break ups
Based on the comments I get from readers, one of the hottest topics on my blog are posts dealing with small business break-ups--be they partnerships, corporations or LLCs. As I've written before, within those disputes, one of the biggest struggles involves the inequality among partners or business co-owners, i.e., what happens when there are equal owners making unequal contributions.
What often happens in such cases is that the business breaks up. In worse cases, the disputes end in massive lawsuits, ugly recriminations, and financial ruin.
Where I've found this potential to be at its greatest is with the formation of those businesses where the co-owners are bringing different things to the table. For example, maybe one person is bringing money, another one is going to do the work, and perhaps a third is contributing an invention or patent that's going to make a million dollars. Each person is bringing something to the business, such that the whole is greater than the sum of its parts. Ironically, however, over time, these very differences can breed resentment among the partners and eventually cause business break-ups.
For example, at the beginning of the above hypothetical venture, the "worker" is getting the best of the deal: the money man risks losing capital, as, to a certain extent, does the inventor. The worker just risks losing his time, but nothing more.
Five successful years later, however, the dynamics may have changed. The capitalist and inventor are enjoying a nice return on their investment. The worker, however, is resentful: the business would stop without him. Whereas the capitalist and contributor have received back their investment (and then some), the worker continues to have to invest his time, effort and labor into the business.
I have also watched similar situations play out in a different manner. I've watched an "idea man", perhaps willing to do the work, who gathers up willing monetary investors. He's promised the investors great potential, and wonderful returns some time in the future. When things get successful, it turns out that he's issued himself so much stock, he effectively controls the company. The investors get little in the way of dividends, because by the time the idea man has paid himself a nice salary and benefits, there's little left. Theoretically, their stock is creating equity, but because their company isn't publicly listed (or, in an alternate scenario I have seen, they learn the shareholders' agreement has a provision requiring them to offer their stock back to the company at preferential rates prior to selling to a public buyer), the investors now have little hope of ever seeing a meaningful return. In other words, the passive investors' investments are held hostage.
Although attorneys do a good job of foreseeing the "worst case" scenario--i.e., what happens when things go awry--we also need to prepare for best case scenarios--i.e., what happens when things are going very well, and the equities have changed.
Here are just a few ideas to allow the continuation of a small business, even when the business contains different types of investors:
1. Provide benchmark dates at which the investments are vested, and any future contributions are paid for at arm's-length. This is a hard idea to pin down, except by way of example. Go back to my initial example of three different investors, each with a very different type of investment. Each investor, theoretically, could be benefited more than the rest, or less than the rest, depending upon how the company was structured. But they could all be treated fairly, if they come up with success benchmarks that allow them to treat their investment as having been fully paid in.
In the example of the worker, the company's organizational agreement could state, for example, that after the company reaches $X sales per year, the worker will be paid a salary--or perhaps, can hire staff and no longer have to contribute his own services. He is no longer captive: he's either now an investor and a paid-employee (in the first example), or else a passive investor like the rest (in the latter example).
For the inventor, perhaps the same agreement should state that after some benchmark (perhaps Y years), the inventor's patent will simply be licensed to the company, on a yearly basis, for a certain sum of money.
In other words, to avoid disparities later in the company's existence, you create a system so that the investors' later contributions of time, effort, or whatever, are compensated on an arm's-length basis.
2. Create, at the outset, scheduled pay-outs or buy-backs. In the other example, of the passive monetary investors, they contribute all the risk, but the idea man, as the business becomes successful, effectively shuts them out and sews up their contribution. Investors should recognize this as a risk, and ask for organizational documents that create some type of guaranteed payout--be it through a guaranteed buy-back, guaranteed dividends, or the like.
3. Create, in the organizational documents, forced buy-out or buy-back provisions. At the very least, you could place in the organizational documents provisions by which you can force a buy-out or buy-back, at an agreed upon price (or agreed upon pricing mechanism) during a certain time period or after a certain triggering event.
Interestingly, of the small business disputes I've seen, at least as many of them stem from business success as do from business failure. When setting up or starting a small business with numerous investors, don't just think about the worst-case scenario: ask yourself, what problems arise if the best case scenario occurs?
What often happens in such cases is that the business breaks up. In worse cases, the disputes end in massive lawsuits, ugly recriminations, and financial ruin.
Where I've found this potential to be at its greatest is with the formation of those businesses where the co-owners are bringing different things to the table. For example, maybe one person is bringing money, another one is going to do the work, and perhaps a third is contributing an invention or patent that's going to make a million dollars. Each person is bringing something to the business, such that the whole is greater than the sum of its parts. Ironically, however, over time, these very differences can breed resentment among the partners and eventually cause business break-ups.
For example, at the beginning of the above hypothetical venture, the "worker" is getting the best of the deal: the money man risks losing capital, as, to a certain extent, does the inventor. The worker just risks losing his time, but nothing more.
Five successful years later, however, the dynamics may have changed. The capitalist and inventor are enjoying a nice return on their investment. The worker, however, is resentful: the business would stop without him. Whereas the capitalist and contributor have received back their investment (and then some), the worker continues to have to invest his time, effort and labor into the business.
I have also watched similar situations play out in a different manner. I've watched an "idea man", perhaps willing to do the work, who gathers up willing monetary investors. He's promised the investors great potential, and wonderful returns some time in the future. When things get successful, it turns out that he's issued himself so much stock, he effectively controls the company. The investors get little in the way of dividends, because by the time the idea man has paid himself a nice salary and benefits, there's little left. Theoretically, their stock is creating equity, but because their company isn't publicly listed (or, in an alternate scenario I have seen, they learn the shareholders' agreement has a provision requiring them to offer their stock back to the company at preferential rates prior to selling to a public buyer), the investors now have little hope of ever seeing a meaningful return. In other words, the passive investors' investments are held hostage.
Although attorneys do a good job of foreseeing the "worst case" scenario--i.e., what happens when things go awry--we also need to prepare for best case scenarios--i.e., what happens when things are going very well, and the equities have changed.
Here are just a few ideas to allow the continuation of a small business, even when the business contains different types of investors:
1. Provide benchmark dates at which the investments are vested, and any future contributions are paid for at arm's-length. This is a hard idea to pin down, except by way of example. Go back to my initial example of three different investors, each with a very different type of investment. Each investor, theoretically, could be benefited more than the rest, or less than the rest, depending upon how the company was structured. But they could all be treated fairly, if they come up with success benchmarks that allow them to treat their investment as having been fully paid in.
In the example of the worker, the company's organizational agreement could state, for example, that after the company reaches $X sales per year, the worker will be paid a salary--or perhaps, can hire staff and no longer have to contribute his own services. He is no longer captive: he's either now an investor and a paid-employee (in the first example), or else a passive investor like the rest (in the latter example).
For the inventor, perhaps the same agreement should state that after some benchmark (perhaps Y years), the inventor's patent will simply be licensed to the company, on a yearly basis, for a certain sum of money.
In other words, to avoid disparities later in the company's existence, you create a system so that the investors' later contributions of time, effort, or whatever, are compensated on an arm's-length basis.
2. Create, at the outset, scheduled pay-outs or buy-backs. In the other example, of the passive monetary investors, they contribute all the risk, but the idea man, as the business becomes successful, effectively shuts them out and sews up their contribution. Investors should recognize this as a risk, and ask for organizational documents that create some type of guaranteed payout--be it through a guaranteed buy-back, guaranteed dividends, or the like.
3. Create, in the organizational documents, forced buy-out or buy-back provisions. At the very least, you could place in the organizational documents provisions by which you can force a buy-out or buy-back, at an agreed upon price (or agreed upon pricing mechanism) during a certain time period or after a certain triggering event.
Interestingly, of the small business disputes I've seen, at least as many of them stem from business success as do from business failure. When setting up or starting a small business with numerous investors, don't just think about the worst-case scenario: ask yourself, what problems arise if the best case scenario occurs?
Sabtu, 28 Maret 2009
(Somewhat) Off-topic: The Economy and Temperament
I've been speaking to my law partner lately, and we've together come to the conclusion that the populace, in the past year, has just gotten a little ... meaner.
My business practice consists of both transactional work (e.g., the buying and selling of businesses) and business-related litigation. While I'm not surprised by the fact that transactional business is currently down, I've been surprised at how much business-related litigation has picked up (and this is not counting collections and debt-related litigation). Sure, some of the cases I've picked up involve the fact that someone is now financially unable to perform the terms of the contract, but many of the cases involve malice, opportunism, fraudulent behavior.
The tide of meanness doesn't just stop with clients, however. I've spoken to some of my fellow attorneys, many of whom are extremely frustrated. Some are just wanting to get out. In tough times, when an attorney is involved in a transaction, if something goes wrong, everyone looks to the attorney as a sort of insurance policy or bank, expecting him to pay for everyone's mistakes--and this is what a couple of my colleagues are feeling right now. Others have started to fight among themselves, even to the point of spreading rumors about some of their fellow attorneys' impending shutting down of offices.
Beyond the legal profession, I've seen more bitterness in the local newspapers (who seem more than usual, to engage in rumor mongering and yellow, opinion-based journalism), in consumers, and in the population at large.
When pointing this out to my partner, he agreed, and we discussed what we thought about this ugly mood that we're seeing. Here, I believe, are some of the causes:
1. Economic Difficulties. This, of course, should be no surprise. My insurance clients tell me that more questionable claims have arisen, and claimants are quicker to threaten suit if they don't receive a settlement they believe is fair. Folks, desperate to hold on, want someone--anyone--to bail them out, and so they appear to be quicker to point the finger of blame and expect compensation. Anyone who is married knows that when money is tight, you tend to argue more, and with an American populace collectively feeling the pinch, there are a whole bunch of ornery people out there right now looking to fight.
2. Political Difficulties and Change. In the last year, the country has seen a sea change of politics. The political minority is scared about the direction being taken by a decidedly leftist administration. Some realists within the political majority are coming to see that a smooth-talking man with a cult of personality is not the panacea they hoped. It's all different now. And the politics have gone from an understanding that government is no solution, to one in which a desperate population is willing to give up its collective freedom for financial security.
3. Changing of the Rules. With all of the political and economic change described above, many of the rules we've all gone by suddenly have been thrown out the window. Real estate, the way to sure riches, suddenly has become a burden and a source of loss. Whereas two years ago we were all reading books and dreaming of how to leave the boring office cubicles to live an exciting life of entrepenurialism and self-employment, most of us now are just thankful for (or even worse, still wishing they had) those same boring jobs.
While I expect the effects of all this change to eventually settle in (for better or worse), the current instability has created an ugly mood in our area. The only lesson, perhaps, to be drawn from this is that in this world, when depending on the temporal, it can all be taken away, and if that is the base of a person's life, it, like a foundation created on sand, can wash away in a great storm.
My business practice consists of both transactional work (e.g., the buying and selling of businesses) and business-related litigation. While I'm not surprised by the fact that transactional business is currently down, I've been surprised at how much business-related litigation has picked up (and this is not counting collections and debt-related litigation). Sure, some of the cases I've picked up involve the fact that someone is now financially unable to perform the terms of the contract, but many of the cases involve malice, opportunism, fraudulent behavior.
The tide of meanness doesn't just stop with clients, however. I've spoken to some of my fellow attorneys, many of whom are extremely frustrated. Some are just wanting to get out. In tough times, when an attorney is involved in a transaction, if something goes wrong, everyone looks to the attorney as a sort of insurance policy or bank, expecting him to pay for everyone's mistakes--and this is what a couple of my colleagues are feeling right now. Others have started to fight among themselves, even to the point of spreading rumors about some of their fellow attorneys' impending shutting down of offices.
Beyond the legal profession, I've seen more bitterness in the local newspapers (who seem more than usual, to engage in rumor mongering and yellow, opinion-based journalism), in consumers, and in the population at large.
When pointing this out to my partner, he agreed, and we discussed what we thought about this ugly mood that we're seeing. Here, I believe, are some of the causes:
1. Economic Difficulties. This, of course, should be no surprise. My insurance clients tell me that more questionable claims have arisen, and claimants are quicker to threaten suit if they don't receive a settlement they believe is fair. Folks, desperate to hold on, want someone--anyone--to bail them out, and so they appear to be quicker to point the finger of blame and expect compensation. Anyone who is married knows that when money is tight, you tend to argue more, and with an American populace collectively feeling the pinch, there are a whole bunch of ornery people out there right now looking to fight.
2. Political Difficulties and Change. In the last year, the country has seen a sea change of politics. The political minority is scared about the direction being taken by a decidedly leftist administration. Some realists within the political majority are coming to see that a smooth-talking man with a cult of personality is not the panacea they hoped. It's all different now. And the politics have gone from an understanding that government is no solution, to one in which a desperate population is willing to give up its collective freedom for financial security.
3. Changing of the Rules. With all of the political and economic change described above, many of the rules we've all gone by suddenly have been thrown out the window. Real estate, the way to sure riches, suddenly has become a burden and a source of loss. Whereas two years ago we were all reading books and dreaming of how to leave the boring office cubicles to live an exciting life of entrepenurialism and self-employment, most of us now are just thankful for (or even worse, still wishing they had) those same boring jobs.
While I expect the effects of all this change to eventually settle in (for better or worse), the current instability has created an ugly mood in our area. The only lesson, perhaps, to be drawn from this is that in this world, when depending on the temporal, it can all be taken away, and if that is the base of a person's life, it, like a foundation created on sand, can wash away in a great storm.
Sabtu, 31 Januari 2009
All you could ever want to know about North Carolina Foreclosures
Are you interested in learning how to find deals on foreclosures? Want to know more about how the foreclosure process works so that you can try to buy deals from the banks? Look no further. I've just published "A Guide to Buying North Carolina Foreclosures," a book that is, the best I can tell, the first book ever written specifically about North Carolina foreclosures. My book will:
--expose some of the biggest myths about buying foreclosures;
--show you how to learn about foreclosures more quickly than others;
--explain how to ensure that you have a good and clean title;
--give you forms that will help you when you start buying foreclosures.
Interested? Go to http://stores.lulu.com/ncbusinesslaw . Paperback copies are $26.95, or you can download an e-book version for $19.95.
--expose some of the biggest myths about buying foreclosures;
--show you how to learn about foreclosures more quickly than others;
--explain how to ensure that you have a good and clean title;
--give you forms that will help you when you start buying foreclosures.
Interested? Go to http://stores.lulu.com/ncbusinesslaw . Paperback copies are $26.95, or you can download an e-book version for $19.95.
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