The prevention of severe legal problems is critical in running a thriving business. There are many things small business owners can do on their own, but there are some cases where consulting an attorney is worth its weight in gold.
It is always useful to be in touch with a business lawyer before needing one. For example, if a dissatisfied worker files a lawsuit against you, having an already familiar attorney with your business can be an invaluable investment.
Typical Misunderstandings About Small Business Lawyers
There are misunderstandings about attorneys in general, but many individuals do not comprehend that an attorney, and in this instance, a small business lawyer, can be crucial to a business’s success. Whether it comes in the form of protecting the business from lawsuits or intellectual property theft, or if it’s to provide tax incentives, attorneys are valuable assets.
Below are a few of the more typical misunderstandings about small business attorneys:
- “Lawyers are too costly:” Lawsuits are even more costly. Plus, many lawyers offer their first consultation free of charge. It is also feasible to negotiate legal costs.
- “Lawyers are self-interested:” Lawyers owe their clients a fiduciary duty to act with loyalty, honesty, and care. This means that the lawyer holds their client’s best interest first and only.
- “A lawyer doesn’t know anything about small business management:” Business lawyers specialize in business. This specialty gives them a unique understanding of the inner workings of business and the law and can help provide a business owner an advantage.
- “Lawyers are too risk-averse:” This risk aversion is often what will stop costly future litigation. A small business lawyer can assess liabilities before they happen, saving costly business expenses.
What to Know Before Hiring a Business Lawyer
It is essential to do a little investigation before you employ a small business attorney and also to come prepared for your consultation with the following:
- Firm Size: A firm with many workers may charge you more than a single practitioner. Keep in mind that just because one is larger than the other, it doesn’t translate into being a more suitable fit.
- Case History: Some attorneys are argumentative, meaning they take cases to court more often than settle out of court. Others prefer settling beforehand. There are risks and advantages to both, so find a lawyer that suits your interests.
- Experience Matters: Be sure to ask an attorney about their specialty. Some are experienced in intellectual property, others in taxation, while some specialize in contracts.
- Caseload: Ask the lawyer how weighty their caseload is at the moment. If they have too many cases, the truth is that your business will not obtain the attention that your money merits.
What Is a Fiduciary Duty? What Are the Basic Types of Fiduciary Duties?
A fiduciary is a person who has either a legal or ethical relationship of trust with someone else. When a person has a fiduciary duty to another individual, the fiduciary must conduct themselves according to the benefit of that other individual. The individual the duty is owed is sometimes referred to as the principal or the beneficiary. A fiduciary generally takes care of money or other assets for the beneficiary.
One of the most significant fiduciary duties is the duty to act for the beneficiary’s benefit, not the fiduciary’s benefit. Fiduciary duties can be classified in three ways:
- Duty of Care: A fiduciary is expected to use the amount of care that any ordinarily prudent individual would exercise in a similar position and under similar circumstances. An instance of this would be a lawyer’s duty to treat their client’s property or money that they are trusted to manage and protect as their own. They must make prudent decisions regarding the best ways to manage and safeguard the assets they are entrusted with;
- Duty of Good Faith: The fiduciary is tasked with the burden of acting with conscious regard for their duties as a fiduciary, meaning the fiduciary must not act in any deceitful or fraudulent way to the disadvantage of the beneficiary; and
- Duty of Loyalty: A fiduciary’s duty of loyalty is extensive. In short, the fiduciary must act for the advantage and benefit of the beneficiary without making any decisions that would be disadvantageous for the beneficiary. A fiduciary may not make any judgments on behalf of the beneficiary out of self-interest or for their benefit.
The duties mentioned above are mainly imposed by public policy when a specialized service, such as legal help, applies.
What Is a Fiduciary Duty of Loyalty?
One of the most significant fiduciary duties is the duty of loyalty. Fiduciaries are expected to act in good faith and with the righteousness, character, and openness that the law requires of their position. They must not be involved in any self-dealing transactions, conflicts of interest, or any other principal abuses for any personal advantage.
When making any transactions or decisions, the fiduciary must avoid the following:
- Misappropriating Business Opportunities: When a business lawyer manages and protects property or money on behalf of a beneficiary for business objectives, they must not grab a business opportunity while acting within their fiduciary duties. They must not seize the business opportunity for their benefit. The fiduciary must disclose and offer the business opportunity to the beneficiary when that opportunity belongs to the beneficiary;
- Make Interested Transactions: Business lawyers entrusted with a beneficiary’s property and funds must watch and manage the property on behalf of the beneficiary. They must not make interested transactions using the property assigned to them. An example of this would be how a fiduciary may not buy or sell assets, make any personal profit, or make any self-dealing transactions using the funds or property entrusted to them; and
- Breaking Their Duty of Confidentiality: A duty of loyalty also requires that a business lawyer maintains confidentiality regarding all decisions and private information their client has entrusted them. A beneficiary may not wish for public disclosure of their matters. The business lawyer would be prohibited from disclosing information about the beneficiary’s property or transactions. They must first get approval to disclose.
What Can Be Done About a Breach of the Duty of Loyalty?
Breaches of the duty of loyalty can happen in several different ways. Nonetheless, breaches typically occur when a business lawyer acts in any way that benefits themselves instead of the beneficiary or to the beneficiary’s detriment.
A breach could also include the lawyer acting in such a way that helps others at the beneficiary’s expenditure. Deceitful conduct also constitutes a breach of the duty of loyalty, and the business lawyer may be prosecuted for the violation and the underlying offense.
To recover damages for a breach, you must show:
- The fiduciary occupied a position of trust or was placed in a fiduciary relationship;
- The fiduciary acted in a way that benefited them personally while in the scope of the fiduciary relationship;
- Proof that the duty of loyalty was owed;
- The duty was breached by the fiduciary;
- The breach caused damages to the claimant; and
- What actual damages occurred.
Is It Time to Seek Legal Advice?
No matter where you are in the process of business ownership, seeking the advice of a local small business lawyer is necessary. This effort will help limit your business’ liability and defend your intellectual property. Still, an attorney can also help you form the business entity and help you with contracts and taxation issues.