Not every business transaction needs a lawyer, but often times it helps to have the guidance and control that good legal advice and drafting can provide. Something as basic as a contract can help the parties determine their obligations such as quantity, delivery terms, payment terms, and warranties.
How do you known when to call a lawyer for your business? I advise my clients using multiple criteria plus my personal experience doing this for over 20 years. Ultimately it comes down to the businesses ability to withstand economic pain if something goes wrong versus the transaction costs to set up a safe structure for the transaction.
Some criteria I consider can be classified as:
· Product or service
· Social / personal
Today’s article will discuss Customer centered factors, that is, when do you need to have the clarity and protection of the laws set out clearly between your business and your customers. We all like to think that our customers love and appreciate our service or product, but the fact is a dissatisfied customer can seriously damage a businesses reputation.
When assessing whether a client should begin imposing legal boundaries between the business and the customer, some factors I consider are:
– Whether it’s appropriate to establish a wall between the business, the business owner, and the customer.
– Whether it’s time to set standards for the relationship. This can include warranties, quantities, delivery terms, payment and credit terms. A contract to remodel a kitchen is a great example, because it will explicitly state the types of products to be used, anticipated times for installation, colors and finishes, and payment terms.
– To establish liability limits. Especially among businesses, limited warranties and warranty disclaimers can be a great source of fees for an attorney if not drafted right. Warranties can be as simple as “product not guaranteed” to explicitly detailed. An example from a case I worked on was for an HVAC unit manufactured by my client that caught fire and damaged the building on which it was installed. There is no way the manufacturer can anticipate what losses may occur from a fire – other than damage to the unit (is the unit installed in a warehouse full of cheap sunglasses, or on the Art Institute full of priceless paintings?). So in this case, the warranty was limited to fixing or replacing a damaged unit.
– To establish who the liable entity is. This is liability protection for the small business owner. While “Bob” may be the owner and the person whom you meet to discuss your new kitchen, the actual entity he represents is the one doing the installation, “Bob’s Company” or something. If something goes wrong with the installation, “Bob” is not liable, only the business is.
– To limit personal losses when the potential for loss exceeds the owner’s ability to personally pay. Sole proprietorships are a great thing for small businesses, they’re easy to start and run. However, for some the potential liability to the owner may be too risky to venture without some sort of legal protections. Owning a sole proprietor tire installation shop may sound like a good idea, but to a risk averse lawyer the first thing we think of is what happens if a tire is installed improperly and someone is hurt – can the owner as an individual absorb the cost of a lawsuit?
No one factor is determinative for every business, often the nature of the business determines when it’s appropriate to put some legal protections between the owner and customers. The factors have to be weighed against the other factors I’ll discuss in future articles. If your WNC or Chicago business needs to start formalizing its relationships, call me for legal help at (312) 671-6453 or go to palermolaw.com for more information.