“Saving” money on legal fees – by Cliff Ennico (04 May 08)


I love the radio and television ads for a certain auto insurance company where someone is telling a friend his “tale of woe” – a laundry list of horrible things that has happened to the person – and the friend, after listening sympathetically, says, “well, yes, that’s too bad, but the good news is . . . I saved a ton of money on my auto insurance!”

Those ads, ladies and gentlemen, are my life.  I’m getting a ton of e-mails these days from people who tried to save a few bucks in legal fees and found out – too late – what those bucks might have bought them.  Here are a few:

“I registered my corporation in Nevada several years ago because I saw this great online ad telling me I could incorporate there for only $50.  Last week I just got a letter from my state tax authority telling me I’m getting audited for income and sales taxes because I never registered my corporation with them.  Can I just tell them to go away because I’m registered in Nevada?”

When you incorporate in another state, you still have to register your corporation in the state where you’re physically located and pay taxes there.  Sadly, many of the “do it yourself” incorporation Websites don’t tell you that.  Not only will you have to pay several years’ worth of taxes, with interest and penalties, but I predict you’ll be getting a similar letter very soon from your state Attorney General’s office accusing you of running an illegal business in your state.

But look on the bright side . . . you saved money in legal fees!

“I formed a limited liability company (LLC) several years ago with two other partners.  My accountant set up the LLC, and told us we needed a lawyer to draft our partnership agreement.  We figured we didn’t need one because all three of us got along pretty well.  Now my two partners have moved to other states, leaving me to do all the work.  Because we’re listed as equal partners on our LLC tax returns, they’re getting two-thirds of the profits, they’re not lifting a finger to help me, and they refuse to pay me a salary.  Is there anything I can do about it at this point?”

Not a whole lot.  Once someone becomes your partner, the only way you legally can get rid of them is to buy them out for a fair price.  Without a written agreement, though, there’s nothing to force them to sell out to you.  You are now their “Cinderella,” and the only thing you can do is quit the business yourself and let it die – a shame since it’s doing well.

But look on the bright side . . . you saved money in legal fees!

“I recently hired a sales representative.  I needed an employment agreement in a hurry, so I downloaded one from a Website that specializes in legal contract forms.  Well, now my business isn’t doing too great and I need to downsize this employee to cut costs.  In reading the contract, though, it seems I can’t terminate this guy unless he commits a felony!  Is there any way the law would throw out this contract and let me fire him?”

It actually works the other way – whenever there’s a written contract that’s more favorable to the employee than what the law allows, the courts will usually uphold the contract.  While a lot of downloadable legal forms on the Web are pretty good, you still need a lawyer to look at them and “customize” the contract language. 

But look on the bright side . . . you saved money in legal fees!

“I had to fire someone recently – my most senior employee.  The exit interview went very well, he didn’t seem upset, I offered him a generous severance package which he accepted, and he signed a generic release form that my attorney drew up years ago when I first started the company.  Now, three months later, he’s suing me for age discrimination!  How the Devil can that happen after he signed a release?”

It can happen because under the federal Age Discrimination in Employment Act, a release of age discrimination claims must contain very specific language.  For example, you have to give the terminated employee seven days to sign the release, and an additional 21 days to change his mind.  A generic release doesn’t have these provisions. 

But look on the bright side . . . you saved money in legal fees!

Nobody likes paying legal fees.  But when you run your own business, they are a necessary cost of doing business.  It always costs a lot less to prevent a problem from happening than it does to “fix” the problem once it happens.  If you lose your business because you were too cheap to spend an hour of your attorney’s time, the fact you saved money won’t be a huge consolation.

Cliff Ennico (cennico@legalcareer.com) is a syndicated columnist, author and former host of the PBS television series ‘Money Hunt’.  This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.  To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.  COPYRIGHT 2008 CLIFFORD R. ENNICO.  DISTRIBUTED BY CREATORS SYNDICATE, INC.



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