Our BUILD facilitator Tifani Sadek of Sadek Bonahoom is known as the small business lawyer in Detroit. She’s worked with tons of companies including many of our own BUILD grads. Here she shares her top pieces of legal advice for entrepreneurs.
Do not get your legal advice from the internet.
It is a good idea to get a good general background so that you can have a knowledgeable conversation with your lawyer, but do not get your legal advice from the internet. I have seen startups bring me some of the worst contracts I could ever imagine that they found on the internet – contracts from other countries, contracts that unknowingly give their companies away, contracts that are completely unenforceable in Michigan, contracts that would result in possible jail time (usually pertaining to SEC violations and trying to raise money from investors). I understand not every startup can afford tall legal bills – that’s why I started my own firm to be able to offer more affordable legal services. But there are plenty of opportunities to seek legal advice for free or low cost. So many business organizations in Detroit offer legal seminars in which you can access an attorney and get your questions answered. Area law firms – including mine – regularly host events, seminars, and workshops for entrepreneurs. The US Patent & Trademark Office has events where you can speak directly to patent law professionals. Wayne State University and the University of Michigan offer free or low-cost services to startups that meet certain financial guidelines. Bottom line – there’s no reason you have to go it alone when it comes to making sure you are on the right path legally. As the saying goes – whether it is at the beginning or at the end, you’ll pay for a lawyer one way or another.
Make the deal clear with your business partners.
I always say that taking on a business partner is like getting married – you will be sharing finances, making decisions together, and spending a lot of time with each other. Would you marry someone without really know them and what they expect out of marriage? I hope not! Similarly, you should not become legal partners in business so easily. Talk about key issues, like how much money you expect each to put in, how much time each of you must work, what happens if someone wants to quit, and how are you going to make decisions together. These issues and more should be drafted up in what is called an operating agreement, which are basically the rules of your company. Think of it as a pre-nup, and by going over these issues early while they are still hypotheticals, you can create a roadmap of how to deal with sticky or uncomfortable situations and avoid a lot of potential conflict.
Make the deal clear with your clients.
If you are a service-based company, investing in a good master contract – one you can use over and over – is a great idea. Small business owners are sometimes wary of contracts because they don’t think they would actually enforce them if it came down to it, but that ignores one very basic reason for having a contract: making sure you are on the same page (or a meeting of the minds, as we call it in law). There are many disputes that could have been avoided in the first place had the company and client actually discussed the topic beforehand. Having a comprehensive – yet readable – contract to review with your client makes sure that you both understand the agreement you are making, and that you cover all possibilities and determine how they will be handled ahead of time. I have seen two people have a conversation and walk away with two different understandings of what they just agreed to. Seeing the agreement in black and white clears up a lot of confusion. For that reason alone, having a contract is very valuable to maintaining good customer relations.
Be careful with real estate.
In Detroit specifically, there are a lot of bad real estate contracts floating around, and by bad, I mean the favor the landlords heavily. Make sure you have an attorney review your lease before you sign it. We all read stories about businesses getting evicted or having their rent increase astronomically when an area becomes cool – there are legal protections you have in your lease to prevent that. At the very least, you’ll know what you are getting into before you spend a lot of money advertising your location or sprucing up the place.
Protect your intellectual property.
This is especially important for tech companies, but this applies to everyone really. Sometimes we forget about our intellectual property. We understand those things we can touch – real property like our office or personal property like our laptops. But there is a lot of value in your branding, your recipes, your customer lists, your computer code, your pricing strategies – all of that is what’s referred to as intellectual property. Those things we can touch but that would give our competitors an advantage if they were to have access to it. There are ways to protect your intellectual property, from securing trademarks to having your key employees sign confidentiality agreements so they do not spill your “secret sauce” to the public. If you have a lot of valuable intellectual property that is essential to your business, make sure you are protecting it.