WHEN SHOULD A CPA SUGGEST THEIR CLIENT CONSULT A LAWYER?

As a certified public accountant serving mid-sized or middle-market businesses, you play a critical role in your clients’ financial and operational success. One of the key ways you can add value is by recognizing when your clients should seek legal advice. This proactive approach not only protects their interests but also fosters trust and deepens your relationship with them. Here are several scenarios in which you should recommend that your clients consult a lawyer, and the potential pitfalls of not doing so.

FORMING AN LLC

When a client is starting a new business or restructuring an existing one, choosing the correct business entity is crucial. Limited Liability Companies (LLCs) are popular due to their flexibility and the liability protection they offer. However, forming an LLC involves several legal nuances:

Proper Jurisdiction: Selecting the right state to form the LLC can impact taxes, regulatory requirements, and legal protections. An attorney can advise on the best jurisdiction based on the business’s operations and goals.
Operating Agreement: This document outlines the LLC’s management structure and the rights and responsibilities of its members. Without a well-drafted operating agreement, clients might face internal conflicts and legal disputes.

Example: A client decided to form an LLC without consulting a lawyer and used a generic template for their operating agreement. Later, disagreements arose among the members regarding profit distribution and decision-making processes, leading to costly litigation.

ADDING OR REMOVING AN INVESTOR

When a business adds or removes an investor, it significantly impacts the company’s structure and operations. Here’s why legal guidance is essential:

Securities Law Compliance: Issuing new shares or ownership interests must comply with federal and state securities laws to avoid penalties and legal challenges.
Shareholders’ Agreement: This document governs the relationship between the company and its shareholders. It should detail rights to dividends, voting rights, and exit strategies for investors.

Example: A client added an investor without a formal agreement. Later, disputes over the investor’s role and profit-sharing led to friction, ultimately disrupting the business’s operations.

BUYING OR SELLING PROPERTY

Real estate transactions are complex and fraught with potential legal pitfalls. Lawyers ensure that transactions are legally sound and protect the client’s interests:

Due Diligence: Conducting thorough checks on property titles, zoning laws, and environmental regulations is essential. Missing these details can lead to future legal and financial liabilities.
Contract Review and Negotiation: Real estate contracts often contain intricate clauses. Lawyers can identify and negotiate terms that could otherwise disadvantage the client.

Example: A client bought a commercial property without legal advice and later discovered that the zoning laws restricted their intended use of the property, resulting in significant financial losses.

ENGAGING IN A JOINT VENTURE

Joint ventures can offer significant business opportunities, but they also come with legal complexities:

Joint Venture Agreement: This agreement should outline the venture’s objectives, the contributions of each party, management structure, and dispute resolution mechanisms.
Intellectual Property Rights: Determining ownership and usage rights of intellectual property created during the venture is critical.

Example: Two businesses entered into a joint venture without a detailed agreement. Disputes over profit sharing and intellectual property rights arose, ultimately leading to the venture’s dissolution and financial losses for both parties.

NAVIGATING EMPLOYMENT LAW ISSUES

Employment law is an ever-evolving field, and non-compliance can result in severe penalties:

Employment Contracts: These should be tailored to comply with state and federal laws and protect the business from potential disputes.
Workplace Policies: Implementing clear policies on discrimination, harassment, and employee conduct helps prevent legal issues.
Independent Contractor vs. Employee: Companies should understand the legal and practical differences between an employee and an independent contractor. Companies utilizing “full time” 1099s or independent contractors should ensure that they are not inadvertently violating federal and state law by misclassifying the workforce.

Example: A client faced a lawsuit for wrongful termination because their employment contracts lacked proper legal safeguards, resulting in a costly settlement. The workforce was also hired as 1099, but under the eyes of the law, the workforce were reclassified as employees, and thus the company paid thousands of dollars in penalties.

INTELLECTUAL PROPERTY PROTECTION

Intellectual property (IP) is often a business’s most valuable asset. Ensuring proper IP protection is crucial for maintaining competitive advantage:

Trademarks and Patents: Filing for trademarks and patents requires precise legal knowledge to ensure protection.
IP Agreements: Contracts with employees and partners should include clauses that protect the company’s IP rights.

Example: A client’s innovative product design was copied by a competitor because they failed to secure a patent. The legal battle to reclaim their IP rights was long and costly.

LEGAL CONSEQUENCES

The common thread in all these scenarios is the risk of not consulting a lawyer. The pitfalls include:

Improper Jurisdiction: Incorrectly choosing a jurisdiction can lead to higher taxes and stricter regulations.
Misunderstanding Agreements: Generic or poorly drafted agreements can result in disputes and litigation.
Corporate or LLC Rights Misunderstanding: Without legal guidance, clients might not fully understand their rights and responsibilities, leading to internal conflicts and legal issues.

CONCLUSION

As a certified public accountant, recognizing when your clients should seek legal advice can significantly impact their success and your relationship with them. Encouraging them to consult a lawyer for critical business decisions not only protects their interests but also demonstrates your commitment to their long-term success.

About GNS Law

GNS Law is a boutique business and corporate law firm dedicated to serving small and mid-sized businesses. We offer expert legal services in business formation, investor relations, real estate transactions, joint ventures, employment law, and intellectual property protection. Our experienced team ensures that your business is legally sound and positioned for success. For more information, contact us at info@gnslawpllc.com.

By guiding your clients to seek legal advice when necessary, you help them avoid costly mistakes and ensure their business thrives. GNS Law is here to support you and your clients every step of the way.

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Shareholder of Outsourcing Company with Operations

US and LATAM

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Diego Oropeza, Founder of Recruxo

Operations in the US and Argentina

“For nearly a decade, GNS Law has been our trusted legal partner, helping us navigate complex business and corporate matters across multiple industries. As Chairman of several companies, including a telecom firm with transactions in Latin America, I’ve relied on their unmatched cultural acumen and legal expertise to close critical deals. Their efficiency and deep understanding of cross-border transactions have been instrumental to our success. GNS Law is our go-to firm, and we couldn’t be more satisfied with their counsel.”

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former President at RunMy Process.

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Female CEO of DFW-based national advisory and learning services company

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Kibernum

Operations in LATAM and the U.S.

“ Gabriela is very responsive and goes the extra mile in getting work done timely. Gabriela and her associates are thorough and very organized. We have used them on several small projects relating to organizational documents and letters, but we were also very pleased with a recent sale transaction Gabriela advised us on that took a lot of review and updating in a compressed timeframe. We were successful in getting the sale documents in order, and highly recommend this firm for corporate work. ”

Leslie Pelley Emerson, CPA

Corporate Controller Ascendare

“ When we were looking for an international lawyer in the United States, we were told to reach out to Gabriela Smith. Gabriela very quickly and diligently started working on our international negotiation, and she achieved the outcome we wanted. Working with Gabriela turned a very difficult situation into a simpler deal. We recommend Gabriela. / Cuando buscabamos un abogado internacional en Estados Unidos, nos recomendaron a Gabriela Smith. Gabriela inmediata y diligentemente represento a nuestra empresa en una negociacion internacional y logro el resultado que buscabamos en el caso. Trabajar con Gabriela hizo que una situacion dificil se vuelva en un problema menos para nosotros. We recommend Gabriela. ”

Luis A. Natella, Manager

VMC Refrigeracion S.A., (Argentina)

“ We have been working with Gabriela for the last year and she has been really helpful in
helping us coordinate and organize the global structure of our companies and with international compliance matters by being proactive, responsive and fully dedicated. ”

CEO of International Technology Company

with offices in North America, South America and Europe

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CEO and Founder

Dallas Logistics and Fuel Family Owned Company

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Gabriela is not just another law firm. It is a group of dynamic lawyers who have a profound understanding of business and of the priorities of seasoned executives. They become a part of the team and pay close attention to the matters they handle and care about client success. We trust Gabriela and they have been our law firm for several years ”

CEO of International Software Company

with offices in North and South America

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Synthesis Retail Solutions

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CEO, Strateq Health

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Legal Director, Belatrix

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