Important Legal Needs for Small Businesses

In the United States, businesses are categorized as small businesses depending on the average number of employees over 12 months or the average value of receipts during the same period. However, the specific numbers vary depending on the industry. Small businesses are entitled to various rights and initiatives, many of which are managed by the Small Business Administration (SBA) and the Small Business Act, first enacted in 1953. There were 33.3 million small businesses in the US during 2023. These businesses employed nearly 62 million Americans and grossed a combined $13.3 trillion in revenue. The SBA issued $87 million in microloans, which were partly used to address the various legal matters small businesses must be ready for.

Small business leaders must prepare for a variety of legal issues. These issues become more varied as businesses grow and expand into adjacent markets. Whether it is a nasty public lawsuit or a minor clerical error that fails to comply with state law, legal snafus can cause serious disruptions to the normal flow of business operations. Inadequate preparations and responses to legal problems can ultimately put a small company out of business. Small business owners must understand the basic legal needs of their company.

Several important legal matters arise before a small business has launched. Entity formation is the process during which a new business chooses a management hierarchy and overall structure. Business entity formation also encompasses the legal and economic steps owners must take to officially form that entity so it can begin operations as a recognized business. Following entity formation, the business is viewed as a legal entity, or “person,” distinct and separate from the owners.

Entity formation represents the perfect opportunity to establish an in-house legal team or a reliable partnership with a third-party business law firm. Failure to properly form a business entity opens owners up to various liabilities, which can then be transferred onto the business, hindering operations before they have started.

Improperly filling out entity formation documents is one potential mistake. Business owners also risk choosing the wrong type of business entity for their venture. If the business and the selected entity do not match, owners can expect to deal with an influx of paperwork and regulations that do not pertain to the business’s day-to-day activities. Additionally, owners may end up assuming excessive tax burdens. Business leaders should strongly consider collaborating with an experienced business lawyer as they progress through the entity formation process.

Hiring employees is another early-stage process that entails many potential legal complications. US employment law is complex, and it is unreasonable for a small business owner to think they can expand their labor force without understanding state and federal regulations governing topics such as overtime pay, minimum wage, guaranteed breaks, unlawful hiring practices, and much more. Business lawyers can also assist leadership with drafting employment contracts and handbooks.

Finally, as businesses grow, they eventually need to let certain employees go. Releasing an employee can be a legal minefield if owners are not well-versed in the process. Nearly every state in America is an at-will employment state, meaning employees can be terminated for any reason so long as it is not unlawful. Yet, many employers terminate workers after the employee invokes a legal right. Business lawyers can help guide employers through the termination process so that it does not become longer and more expensive than it already is.

The General Counsel as the Guardian of Sound Corporate Governance

 

Corporate governance serves as a structure to harmonize a company's leadership, management, and strategic goals. A robust framework outlines functions, obligations, and supervision throughout executive, management, and board echelons. The role of general counsels (GCs) is critical within this framework.

As a licensed and qualified attorney, the GC champions and counsels businesses on strategic matters. They facilitate agreement structuring that complies with legal standards and furthers corporate aims. Effective GCs foster credibility with business executives, positioning themselves as strategic collaborators instead of legal technicians. The general counsel must discern between legal and business guidance to uphold legal safeguards and exercise autonomy.

Thorough due diligence on prospective partner companies is vital for pinpointing potential risks and liabilities. As a legal authority well-versed in emerging issues, the GC can proficiently present essential subjects to the board's attention. For instance, they may counsel on possible regulatory shifts, socio-political patterns, and stakeholder effects. The general counsel enables informed board discussions and strategic governance by proactively raising such topics. Staying current on compliance changes helps the organization navigate complex regulatory environments at both domestic and international levels.

Beyond advising the board on key legal and compliance matters, the GC partners with the chairman and CEO to develop tailored training programs that empower the board and inform new members. These programs encompass corporate bylaws governing internal management and operations, crisis response strategies, regulatory disclosure obligations, best practices for committee organization, and orienting new directors on business aspects. Such training also ensures that all board members understand their fiduciary duties and responsibilities to guide strategic decision-making.

The general counsel facilitates productive and legally compliant board meetings by meticulously documenting deliberations and decisions in the minutes. These records serve as formal proof that board members have fulfilled their fiduciary duties. Before meetings, the GC collaborates with management to compile comprehensive pre-read materials such as agendas, reports, and relevant data to foster well-informed conversations. The GC's legal acumen steers strategic discussions toward compliant and mitigated paths during meetings. Afterward, they summarize actions and next steps and address any remaining director inquiries.

As corporate compliance grows more intricate, oversight and management of corporate governance have shifted from executives to attorneys, especially the general counsel, who often assume the corporate secretary role. The GC emerges as the natural choice to oversee governance, possessing the legal expertise to navigate matters previously handled by the CEO and external counsel. Engaging a GC as an external advisor benefits the organization as their involvement fosters strong leadership, proactive risk management, and proficient, inventive execution of essential responsibilities.

The general counsel is also well-positioned to promote ethical conduct within an organization. They are responsible for maintaining high ethical standards and deeply know the company's legal and operational landscape. As a champion for social accountability, the GC advises on strategies to balance the interests of various stakeholders, including the public and the environment.

They also collaborate with leadership to define core values and foster a culture of integrity in all internal and external interactions. Additionally, the GC aids the board in forming principles that encourage fair decision-making practices.

Directors look for specific traits when appointing a general counsel to serve as the company's steward. In addition to legal expertise, the ideal GC should exhibit qualities such as honor, discretion, perspective, and leadership.

Furthermore, a critical mindset is crucial to enable them to comprehend how regulations interact with various business aspects and promote ethical behavior across the organization.