The High-touch Legal Services® Blog • For Startup Companies

I just got off the phone with the founder of a website that caters to small businesses. He commented that small-business owners routinely suffer sticker shock when they receive invoices from their attorneys. I responded that lawyers can do three things to reduce the likelihood that the amounts of their fees will be a surprise.

First, some work can be done for a fixed fee. Forming a new corporation or LLC is an example, especially if there is only one founder.

Second, sometimes it is possible to estimate the number of hours (and, thus, the fee) for a matter. Preparing an agreement often falls into this category. As work progresses, if it appears the estimate will be exceeded, I contact the client to explain why additional time will be required, and we proceed accordingly.

Finally, for some tasks it is impossible to estimate how much time will be required. Contract negotiation is the prime example: I’ve had negotiations that finished in 20 minutes, and others that took more than a year to complete. In this situation, I work with the client to establish an initial budget. As we approach the budgeted amount, we confer and, as required, revise it.

As I continue to work with a client over time, the budgeting process tends to become less formal. The client gains a sense of trust and an idea of how much work a given matter will require. Occasionally, an emergency will require that a substantial amount of work be done immediately without an opportunity to provide a fee projection, but that should be the exception rather than the rule.

The bottom line: There is no reason why a business owner should be constantly surprised by lawyers’ invoices.

Photo credit: John Ridley via stock.xchng

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Continuing the last post’s discussion of the fictitious business name (FBN – or, colloquially, the DBA for “doing business as”), this post is prompted by a client’s question as to when his company should apply for its fictitious business name.

California Business & Professions Code Section 17910(a) states that a Fictitious Business Name Statement must be filed within 40 days of the time when the FBN first was used by the registrant to conduct business in the state.

The Statement is filed with the County Clerk in the county where the registrant’s principal place of business is located in the state, or in  Sacramento County if there is no such place (Business & Professions Code Section 17915). In addition, if the registrant wishes, FBN Statements can be filed in other counties.

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Two recently-acquired clients had similar situations that brought up the importance of complying with legal requirements.

Each company is a multi-founder startup where one founder became non-productive, and even somewhat detrimental to the business. The other founders wanted to move the problem founder off to the side, where he could cause no more trouble, in a manner that would be fair to everyone involved.

Unfortunately, each company had failed to comply with some of the most basic legal requirements: Holding annual shareholder meetings to elect directors, annual board of director meetings to appoint officers, etc. As a result, in each instance we had to spend time and money taking corporate actions, and recording those actions appropriately in meeting minutes, before the real problem could be solved.

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I recently had a conversation with an attorney in Louisiana, who mentioned that in that state, the annual interest rate on a promissory note was limited to 12%. I told him that in California story is much different.

Article 15 (Usury) of the California Constitution states (simplifying a bit) that the annual interest rate on a loan or forbearance (refraining from requiring payment for a period of time) is limited as  follows:

• If arising from money or goods supplied for personal, family or household purposes, the maximum interest rate is 10%.
• If arising from money or goods supplied other than for personal, family or household purposes, the maximum interest rate is the greater of (a) 10% or (b) 5% plus the rate charged by the Federal Reserve Bank of San Francisco on advances to its member banks.
• If the agreement between the parties does not specify an interest rate, it will be 7%.

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A customer owes you money but is disputing the amount that should be paid. To your surprise, you receive a check for half of the amount in question. On the back, the customer has written “Payment in Full”. If you deposit the check, will you give up the right to ask for the other half of the disputed amount?

The answer depends on which state’s law governs the transaction. I will provide an answer based on California law.

“Payment in Full” or a similar legend is referred to as a restrictive endorsement. Enacted in 1987, California Civil Code Section 1526 at one time allowed the recipient, under certain circumstances, to strike out the restrictive endorsement, deposit the check, and seek payment of the rest of the disputed amount.

However, in 1992 that statute was superseded by Commercial Code Section 3311, which states that, generally, if there is a bona fide dispute and the check bears a prominent restrictive legend specifying payment in full, then by depositing the check the recipient accepts the check as full payment and gives up the right to ask for the rest of the disputed amount.

The bottom line: In California, a restrictive endorsement on a check generally will be enforced.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

I have wanted to write this post for several months, but until now I have held off because of concern that it would come across as a lawyer saying “buy my services”. Today, though, a conversation with a client drove home how important this topic is.

On several occasions, clients have asked me to dig them out of trouble that occurred because they had entered into agreements without the advice of legal counsel. Some examples:

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I am pleased to make the article “The Top Ten Legal Mistakes of Startup and Early-stage Companies” available as a Free Download using the Sign Up button in the sidebar.

Here are the ten mistakes that are discussed:

1. Failing to comply with corporate formalities
2. Pretending that employees are independent contractors
3. Neglecting to provide and update an employee handbook
4. Failing to establish or adhere to discipline or termination procedures
5. Failing to ensure that the company owns its intellectual property
6. Believing that “open source” means “no restrictions”
7. Thinking that all NDAs have the same terms
8. Believing that websites can unilaterally change their terms of use
9. Using another company’s standard-form agreement
10. Giving “family jewels” to an overseas supplier

Related post: Top Ten Intellectual Property Mistakes of Startup Entrepreneurs

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.

After a number of in-house legal positions, I started my own solo law practice in 2004. Most of my clients are startup or early-stage companies, typically technology-related.

For most of the time since then, I have published a well-received monthly e-mail on various legal topics for clients, colleagues and friends.

Now, having received encouragement from a number of people, I am starting my first blog. The tag line for my practice is “High-touch Legal Services for High-tech Companies”, so I have decided to call this the “High-touch Legal Services Blog”.

I hope you will find my posts both interesting and informative.