It's the Law - And Other Lies People Tell You

There are a lot of good reasons to call attorney with a question, but the one that goes the most underused is simple vetting of someone's assertion that something is "the law". We can scarcely go through a day without being told this by someone either in defense of something they're doing, or something they're not. The problem is, this talismanic phrase usually has the desired effect on you, causing you to give validity to whatever is being asserted, because, hey, you don't know the relevant law well enough (if at all) to argue with what's being said and you don't want to look like an idiot for disagreeing.

But, now more than ever, you can call this bluff in one of two ways:

1. Look it up on your own. There are countless free legal resources on the web. For black-letter law (which is the actual statutes, codes, regulations themselves), most jurisdictions have fully searchable versions of the relevant law online either at their own sites or available at a third party site - and in both cases for free. For example, the California Business and Professions Code or the California Penal Code at Justia.com. The best place to search for this type of law is the best place to search for anything else: Google. The problem with this method is that it's a lot harder if you don't know what you're looking for. A good place to start is to ask the "legal expert" who confronted you. Sometimes nothing defuses them faster than asking for a citation to the law they're talking about. But, either way, this method requires you have a pretty good starting point.

2. Ask a lawyer. Well, of course I'll recommend this. After all, I'm a lawyer. But, there are a large number of places online to get your legal questions answered either for free or for a small fee. For example, Law Guru or FreeAdvice.com. These sites require you to post your question then wait - but provided you have a little time to spare before you need your answer, it's hard to beat the price. Additionally, this can be a great way to find a lawyer you might want to hire later on. If you need an answer quickly, your best bet is to directly ask a lawyer. Provided your answer is a simple one, most lawyers won't even charge you. Best to start with a lawyer you know, who if they don't know the answer, probably know someone who does - and have a good reason to help you for free. Either way, you'll have a real answer from a real lawyer, and it's hard to beat that when confronting your armchair attorney with their own misconceptions about the law.

In the end, no matter how accessible the law has become, the vast majority of people who want to tell you what the law is have gotten their information from rumor, innuendo or unverified commentary. Just like you don't let your waiter tell you what's wrong with your, or ask your pharmacist for stock tips - don't take legal advice from anyone whose only contact with the law is watching Law & Order.

Self-Help Legal Revisited - On The Quick and Dirty Trademark

Well, despite my pleas, Legal Zoom continues to make money in record amounts, as their marketing budget grows and the efficacy of their seldom-updated forms continues to dwindle. A little while ago I reproduced their lengthy disclaimer here (which is a lot easier than trying to find it on their site) and tried to point out some of the pitfalls in the “service” that Legal Zoom offers - but by preying on the public’s fear of overwhelming legal fees, general disdain for attorneys and unwillingness to read fine print they’re still able to sell an outdated and mostly useless forms library at an astonishing premium.

Additionally, I discovered that Legal Zoom does actually employ a surprisingly large number of actual lawyers. Unfortunately, these lawyers are not engaged in actually serving Legal Zoom’s clients - but rather are engaged in the full-time job of defending the company against lawsuits. I guess Bernie Madoff’s legal defense team needed something to do. Okay, okay, I’m obviously kidding. But if the disclaimer wasn’t enough to scare you off maybe the army of defense attorneys can do the trick. Those same attorneys are doing all they can to keep any bad press for LZ, well, from the presses.

After I sent out my original piece to my legal network, I received a note from an Intellectual Property (IP) attorney who specializes in trademarks that exposed yet another impossible promise that Legal Zoom is making in its advertising that is creating messes for real IP attorneys to clean up. He wrote:

I just had a discussion with a client about LegalZoom last week - he recently heard a LegalZoom ad on the radio saying, "Get a trademark in minutes." Talk about misleading. In addition to the points you raised nicely in your article (even a hair stylist asks the customer what they need), no one (not even me, an IP attorney) can get a 'trademark in minutes' because the Trademark Examiner won't even pick up the application file for months...

What’s more, a quick review of the Trademark services offered by LZ reveals that no matter how much you pay them, you’re still filling out the application yourself. Have you ever seen the trademark application? It’s daunting even for an attorney. And if you’ve got questions, you’ll be stuck reading the tutorials provided (for free) by the U.S. Patent & Trademark Office (USPTO). LZ does purport offer a LegalZoom Peace of Mind Review - a concept so amazing, they’ve actually trademarked it themselves! This service includes:

Complete information. Our document specialists will contact you by phone and email if additional information or clarification is needed.

Internal consistency.

Spelling, grammar and punctuation. We do not rely solely on software spell checkers. Every document is proofread by a document specialist.

Correct capitalization and lowercasing where required.

Proper pagination and blank space elimination.

Complete words. We spell out abbreviations or symbols in English.

Professional and consistent font usage.

Correct residency information. Indicating the proper state is critical to ensure the document conforms to your state's requirements.

Full names. We verify that full names are given (first and last) and that all names appear consistently throughout the document.

Correct shipping addresses and email addresses to ensure timely delivery.

Wow. Capitalization? Professional font usage? The use of full names? No wonder they can charge $170 bucks for this. That’s full-on proofreading! Does this list really give you any “peace of mind”? I sure hope not. The reality is that they’re holding this out as a review that’s just as good has having an IP attorney look at it, and it’s not. And when it comes back with errors, guess who has to do the fixing and the extra waiting? And guess who’s not getting their money back for their “Peace of Mind Review”? That’s right.

LegalZoom is right about one thing: intellectual property registration can be essential to the success or failure of your business, and it makes sense to invest in something so important. Unfortunately, they fail to mention that IP registration can often be a challenging and nuanced process that is both lengthy and difficult. As I always say: if it’s important enough for you to ask legal questions, it’s important enough to ask a lawyer. And the only person you should take the advice “you really don’t need an attorney” from, is an actual attorney.

The Uninvited Lawyer - Two Ways Your Lawyer Can Help in Negotiation WITHOUT Being There

Sometimes the best thing you can do with your lawyer in a negotiation is not to bring him/her along. There’s no doubt that when a planned meeting with a disgruntled partner, business associate or other individual gets a whole lot more adversarial once you let them know you're bringing your attorney. The chances for peaceful reconciliation plummet as the other party has to contemplate getting a lawyer of their own (if they don’t already have one), what sort of lawsuit they might have to defend against (or file) and begin to impute ulterior motives to everything you’ve done in recent memory. In short, it’s no way to resolve anything. In nearly every case I’ve heard of, a great deal more gets accomplished between parties when there aren’t lawyers present than when there are.

Which isn’t to say that a lawyer still can’t be helpful in a negotiation. We can. There are two things your lawyer can do which will greatly increase your chances for success in a negotiation that don't involve us showing up on your behalf:

1. Give you a plan of attack. By talking to an attorney with experience in your type of dispute, you can discover where the equities of your situation actually lie. You may think you have great legal standing where you have none, and vice versa. They will be able to help to craft opening arguments and positions, and counterpoints to common arguments against you. You can get talking points and an overall strategy which you can place in front of you during your meeting - like the good feeling of having your lawyer there with you, without the bad effect it may have your opponent. Winning negotiations demands prior planning. No matter how much the equities cut in your favor, or how charismatic you are - if you don’t prepare (and the other party does), you will come out with less than you could have otherwise.
   
   
2. Give you a scapegoat. No one likes to be the bad guy in a negotiation. In the end, there is some measure of conflict involved in the process and that’s something that most people don’t enjoy. But having a lawyer means you’ve got someone to blame all the bad news on. Because, in all honesty, lawyers have such a bad reputation that no one’s going to balk at the idea that your attorney is “making” you say all these bad things and gave you no choice in the matter. After all, you’re paying him and he’s supposed to know, right? Besides, what is your opponent really going to say? People may hate lawyers, but they also regard them as authorities - especially when they don’t know otherwise (and sometimes even when they do). Nothing gets you out of the “bad guy” role faster than preceding your point with “My lawyer said...” - and actually having a name a number to hand him if he calls your bluff is a solid idea. The other upside of this is that you don’t get charged by your lawyer to simply use his/her name in the negotiation. Although, I’d steer clear of making things up on the fly and attributing them to counsel - that may earn you the opportunity to find a substitute legal professional.

In the end, it’s always a good idea to have a lawyer in your corner if you’re involved in a dispute with high stakes - but you may save a whole ton of money, time and pain by not inviting him to the actual party.

Why the LLC? Flexibility

Like most corporate/business lawyers, I'm often asked by entrepreneurs what sort of format they should use when forming a new business entity. Corporation? LLC? Limited partnership? S-Corp? It's often a difficult question to answer amidst the excitement and confusion of getting a business started. What's more, it's not a question with a simple answer. It's not as though one of the options is "good" and the others are "bad" - like most lawyers, I'm given to starting my answer with the words you don't want to hear: "it depends..."

In fairness it really does depend on your situation. But I know that's not really what you came to hear, so here's my answer: the LLC. And why? Because of the flexibility.

Here's the worst kept secret in corporate law. No one likes corporate maintenance (you know, Board minutes, shareholder resolutions, etc.) not even corporate lawyers. Actually, especially corporate lawyers. It's not particularly challenging work, and you're often doing it as cleanup - meaning because your client company hasn't kept up with it for the past few years. What's more, keeping track of shares of stock, with certificates, classes, etc., is not fun and it's not flexible. Corporations have been around for a long time, and most of the matters surrounding ownership, allocation of profits and losses, etc, have been well settled for years. That means your new business model is the square peg trying to fit into the corporate round hole.

The LLC is a much "looser" organization. Membership interests (the LLC version of stock) are simpler, easier to give, take and move around, and don't even have to be tied to the allocation of profits and losses. That's right. You can have a business that's 90% owned by someone who only gets 10% of the profits. Which is not to say that you don't need to make sure you keep your accountant in the loop when it's tax time, because you do (read this as, do not file your own business tax returns if you form an LLC!). But if you're bringing in minor investors who you don't want to give equity to, but who you still want to participate directly in the company's upside, or if you need specific ownership for compliance or special taxation matters, you need to be an LLC - those things are nearly impossible with a corporation.

Those types of business needs are much more common today than they've ever been - and that's why the LLC is a much more attractive structure than it's ever been. Of course, you should always talk to attorney if you can before making this decision - but unless you've got a list of questions that's going to require hours of research, you shouldn't have to pay much, if anything, for the advice.

Even Schmeven - The Fiction of the 50/50 Partnership

One of the oldest and fairest sounding ideas in entrepreneurship is actually one of the most troublesome concepts in all of business law: the 50/50 partnership. It's a concept grounded in a fundamental lesson that most of us learned in kindergarten - sharing. When we get into a joint venture of any sort with another person, the simplest thing with regard to ownership is an even split. It's difficult to disagree with this distribution, and amidst the intoxicating haze of a blossoming business or even business idea, there seems to be little downside. Unfortunately, the business law landscape is littered with examples of just how poor of an idea this actually is in practice, especially when things start to go bad.

No Majority

The biggest problem with 50/50 partnerships is the most obvious one. There is no majority. There is only unanimity. Which is particularly difficult to obtain once there is any problem between partners. Because there's only two of you. So, neither of you can get anything outside the normal course of business done without the other. The moment you two stop seeing eye to eye, the company is paralyzed. So, when one of you is ready to go get some additional investors to move the company to the next level and the other isn't, you're not going anywhere. When you have an offer to sell the company and one of you doesn't want to sell, you're not selling to anyone. When you've got an internal dispute to resolve, there's no one else to mediate it, so you're got to pay a professional arbitrator/mediator. And if you do end up in court, the court will recognize the organization is at impasse and order a liquidation of the assets for the benefit of the stakeholders. Wow, right? In short, it's a bad scene.

Ownership

Another problem with the 50/50 partnership the lack of direction it gives on ownership in the case of a dissolution. Think of it like a marriage, because that's exactly what it becomes once you're in a even partners situation. All of the assets of the company, especially any intellectual property are not clearly owned by anyone, and ownership of the great idea you had when you started thing is now the subject of a messy contest. So maybe you can make a lot more with that idea than you partner, and it was mostly your idea to start with. It doesn't matter now, because now it's half his/hers and he/she likely knows how badly you'd like to own it.

The Myth of Equality

The reality of most partnership situations is that there really is a partner who is likely entitled to a controlling stake (i.e. 51% ownership). It could be the partner who put in most of the money or the partner who is bringing in the vital IP, or the partner who has the most business experience and is really more qualified to make the tough decisions, etc. In practice, the difference between 49/51 and 50/50 has a lot less to do with the money coming out than it has to do with control. And while this may be a difficult subject to tackle in the beginning, that may be the best time to leverage all the good energy and emotion to get this vital decision out of the way.

In the end, the 50/50 partnership ends up being neither fair nor equitable with the partners being able to hold one another hostage, and leaving the courts with only the Solomon's alternative to dispute resolution. In situation with more than two partners, equitable distributions can work, but when there's only two of you, it's best to work with an attorney to find out which one of you is going to have control - to avoid neither of you having it.