“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”
~ Joe Biden.
It used to make sense to me to try to scare businesspeople into wanting to pay legal fees. I would tell them one of my many stories about clients who started a business without including an adequate budget for legal fees.
One story was about my client, Joe, who owned a tech start up with his very best buddy Bob. Since they were short on cash and long on mutual trust, they did not bother budgeting for legal fees. They just incorporated a company online and off they went. There was no need to waste money on a shareholder’s agreement.
The company did well right up to the day that Bob died, while still in his twenties and unmarried. Bob’s parents inherited everything, including Bob’s shares in the tech company. Luckily for Joe, Bob’s parents were good people. Unfortunately for Joe, Bob’s Dad, who had no expertise that the company required, wanted to hang on to those shares because they were, for him, a way of staying close to his late son. Cue a whole lot of legal fees to sort out the mess. That added up to considerably more than the cost of a shareholder’s agreement.
Another of my favourite stories was about Dan and Rick. They were such good friends that Dan, who was unmarried, named Rick in his Will as his sole beneficiary. Dan was the tech guy. Rick was the business guy. Dan had some health issues which made him value things such as travelling and partying. Rick had a wife and kids, which resulted in him valuing things such as Dan working hard to maximize company revenue.
When the shareholders fight was finally resolved, the two enemies sat in separate rooms with their respective lawyers to finalize the negotiations and sign the closing documents, because they hated each other too much to breathe the same air. Dan changed his Will.
There is a business concept called “work on your business, not in it,” popularized by Michael Gerber in The E-Myth Revisited. One aspect of working on your business is setting up a proper legal foundation and dealing with the possibility of shareholder disputes, death, disability, and business succession. Entrepreneurs can do this on the cheap, or they can establish a budget for professional legal assistance.
I used to say to my clients, “pay me now or pay me later.” I was good with whatever approach they chose. I made a little bit of money when they set up proper legal structures, and huge gobs of it when they didn’t.
I started off this article by saying that it used to make sense to me to try to scare businesspeople into wanting to pay legal fees. It still does.
This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.