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Pennywise Or Pound Foolish?

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Vincent

This article originally featured in the Fairfield County Business Journal on June 6, 2011.

Containing costs sometimes backfires.

The economic challenges of the last few years have forced companies to place an increased emphasis on containing costs. Unfortunately, cutting back on professional services sometimes backfires by deferring costs and actually can increase the total bill.

The role of a transactional lawyer is to protect clients' interests by identifying issues that may not otherwise be considered, to ensure that documents accurately reflect the parties' intentions, to avoid litigation, and to ensure compliance with applicable law. Too frequently a desire to cost save leads to consulting counsel after the damage is done instead of at the outset of the business activity.

The following are examples of where failure to seek the advice of counsel before engaging in a business activity can be hazardous.

  1. Personal Liability. Employing a liability shield alone is not sufficient. Proper governance procedures need to be followed to ensure the shield is effective. If business and personal assets or expenses are commingled, creditors can argue that the company and its owner are the same and attempt to attach the individual's assets to satisfy a judgment. This is not to say that suit won't otherwise be brought against both an entity and its owner but mistakes like signing an agreement personally instead of in an officer/manager capacity can give a judge a reason not to grant a motion to dismiss the individual from the action.

  2. Friends and Family Financing. Start-up companies which raise capital from friends and family members, choose not to spend for legal advice in connection with such financings. These companies often unintentionally fail to provide adequate disclosure to investors to protect themselves and their control persons from liability and fail to comply with federal and state securities laws in connection with their offer and sale of securities. Federal and state regulators will generally not show leniency simply because an offering of securities is made to friends and family. Serious consequences can ensue for...

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