Why Business Law is Important for Entrepreneurs
Whether you’re a small business owner, a startup founder, a freelancer, or a consultant, you’ve probably seen lawyers online screaming that you NEED to talk to a lawyer sooner rather than later about your business.
I don’t necessarily disagree with this. A lawyer can help you identify risks associated with your business and how to protect against them. They can also help you create a plan for mitigating those risks over time.
What I do disagree with and often find myself so angry I have to go do cardio, is the one-size-fits-all approach that I see lawyers take to business law on the internet. It’s the sentences that start with “The only way to be fully protected is…” that drive me up the wall.
The reason for that is simple: 100% legal protection rarely makes good business sense.
So the key to business law, and what makes it important for entrepreneurs of all kinds, is that a basic understanding of business law allows you to take calculated risks that make good sense for your business.
In this article, I’ll talk about the following:
What business law is;
Why business law is important for entrepreneurs;
The purpose of business law;
How to find good business lawyers.
If you’re ready, let's dive in.
What is business law?
In the simplest terms, business law is the body of law that governs business organizations: how they run, what they are and aren’t allowed to do, and how businesses are established. It includes things like business entity formation, contracts, employment law, intellectual property, and torts (things like personal injury, fraud, product liability, etc.). And it applies to all businesses.
That means business law applies to you if you’re a freelancer who operates as a sole proprietor and it applies to you if you run a giant multi-trillion dollar corporation.
Now to be clear, the same rules don’t apply to the same kinds of businesses, but business law is the full set of rules that governs how a business is allowed to operate based on what kind of business it is.
Why is business law important?
The obvious reason business law is important is because it tells you how to operate and manage your business legally.
But to me, the reason business law is important is because it helps you make informed decisions as a business owner. When you understand the basics of business law, you can identify your choices and make empowered decisions that make sense for your business.
Despite what many lawyers online would have you think, business law is less about “you need to do this to keep your business 100% protected” and more about “it makes sense to do this if you’re worried about this particular risk in your business.” Business law is more flexible than we lawyers make it out to be.
That’s why it’s important to have a working knowledge of business law. When you understand business law and the nuance it entails, then you’ll be able to distinguish between what I call “legal needs” and “legal shoulds.” That discernment helps you understand when something is a legal option versus when something is legally mandatory and that will naturally impact your decision-making and business strategy.
So to me, business law is important not just because it tells you how to operate and manage your business legally, but also because it comes with a lot of nuance. And once you understand the nuance in business law, then you can leverage it to make decisions that most benefit your business.
What is the purpose of business law?
This brings me to the purpose of business law. I’ll start once again by stating the obvious: the purpose of business law is to tell you how to operate and manage your business in a legally compliant way.
This all seems pretty straightforward on paper, but what we often fail to mention as lawyers is that “legally compliant” is often a spectrum. What I mean by that is that there are a lot of ways to be legally compliant, especially if you’re operating in that “legal should” territory.
And as long as you’re operating your business within the range of what’s considered compliant, then you’re good to go.
So to me, the actual purpose of business law, and what can make it an awesome tool for your business, is that it offers you a buffet of options to choose from. As a business owner, it’s your job to identify and understand those options so you can choose the one that’s best for you.
That’s why I often find myself thinking “agree to disagree” when people talk about the law as a hindrance to their business. They say there’s this push and pull between the law and business where the law says to be legally protected you need to do this, but business says to make the most money you need to do this.
And while I agree that it can feel that way, in my time as a lawyer (10 years), I’ve actually found that it’s rarely true. Instead, I’ve found that when it feels like the law and business are butting heads, we’re usually just missing some legal options. Specifically, we’re missing the legal options that work for our business.
The other thing that happens often in those scenarios is that we don’t have a realistic understanding of the legal risk involved. When I was in-house counsel and would butt heads with my executives, either one or both of us hadn’t taken the time to assess the legal risk correctly. Sometimes I was overestimating it and other times they were underestimating it. In both cases, it looked like legal and business were clashing because we had calculated a key data point, the legal risk involved, incorrectly.
This gets right to the heart of the matter when we’re talking about business law: when understood and utilized correctly, business law can function as a powerful data point for decision-making in your business. It can set you up to take well calculated risks that support the growth and sustainability of your business, which is exactly what we want.
Because business is inherently risky. Being an entrepreneur and business owner requires a lot of risk. The purpose of business law is to help you choose the smart risks that best support your business.
How do I find good business lawyers?
This brings me to my last point, which is choosing a good business lawyer.
Here’s the thing: not all business lawyers are created equal.
When you’re looking for a good business lawyer to help you work through a legal issue in your business, you want to find a person who knows how to give you choices. Generally, that means they tend to be good at teaching and doing. What I mean by that is the lawyer isn’t just there to perform the legal service like writing a contract or registering something for your business. They’re also going to explain why they’re performing that service in the way they’re performing it, what the service accomplishes, and why it's important for your business.
The second rule for finding a good business lawyer is to go with someone who empowers you to make informed choices. A good way to spot these people is that they live in a world of nuance, also known as the world of “it depends.”
Here’s a hint: they are rarely the loudest voices in the online and social media spaces. They are usually quieter and let their experience speak for itself. And if you do encounter them online, they’re usually speaking to the massive gray area that is business law as opposed to issuing ultimatums.
The third rule for finding a good business lawyer is choosing someone who knows about and understands financial constraints. Operating a business can be tough financially and sometimes you want to do a legal thing, but you don’t have the money to do it.
A good lawyer can give you options that act as temporary holdovers (because they’re cheaper) until you’re ready to do the legal thing that’s the best option, but more expensive. In other words, you want a lawyer who can meet you where you’re at financially and be realistic with you about your financial constraints when they’re giving you advice.
If you need help understanding the law of your business, contact me about my services or join my bi-monthly newsletter for more tips and announcements about upcoming workshops.