A few years ago I was giving a presentation to a group of entrepreneurs. I was talking about taxes and selection of business entities.
At various points in my presentation, I said “talk to your attorney about this.” For example, when talking about LLC vs corporation, I talked about the tax consequences but also warned that people should talk to an attorney about the legal considerations.
Someone in the audience raised their hand to ask why I kept recommending that they “waste thousands of dollars” on attorneys. He went on to rant and rave about how attorneys are money-sucking leeches and he was damned if he was going to hold an attorney on retainer.
(There sure are some “interesting” people in this world, aren’t there?)
You Don’t Have to Have an Attorney on Retainer
My response was that a business certainly doesn’t need to hold an attorney on retainer, but a business SHOULD have a relationship with an attorney.
I am shocked at the number of corporations I work with who have never talked to an attorney because “it’s a waste of money.” Most of the time, it goes like this: the owner files the articles of incorporation themselves with LegalZoom or a similar service — and oftentimes they file in Delaware even though they’re an Iowa-based business that is never going to have investors or operations outside of Iowa because “that’s what smart businesses do.”
Oftentimes these are corporations that have nothing going on (sometimes almost literally 0 income and 0 expenses) and they fold in a year or two. The owner never intended to pursue angel investors or get involved in other situations that might require a C-corp and a Delaware incorporation. Why bother incorporating at all in that situation??? Which leads to my next statement:
If You Are in a Position to Incorporate, You Can Afford an Attorney
I encourage my readers to disagree with me, so please feel free to write to me to disagree with what I’m about to say: if you are in a position to incorporate your business, you can afford to hire an attorney to make sure the incorporation gets done right.
This is a corollary to what I’ve said before about clients doing their own payroll (and usually not doing it well): if you can afford to have employees, you should be able to afford to pay an accountant or a payroll company to help you process payroll. If you can’t afford that, you probably can’t really afford to have employees.
I’d say the same thing is true of incorporating. If you can’t afford to have an attorney help you incorporate, perhaps you shouldn’t be incorporating.
Back to the Original Question
So, back to the original topic of holding an attorney on retainer: no, I don’t recommend a small business do that. But I DO recommend that a small business have a relationship with an attorney that they can call on when the need arises.