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Google Is Many Things, But It Shouldn’t Be Your Lawyer

By Joseph J. Valane

My experience as corporate counsel to emerging and middle-market companies is connected by a common theme: the legal budget (if one exists at all) is very tight.  It’s entirely understandable.  Resources are limited, and when not staring down the threat of litigation, founders and executives often find the corporate representation corner the most enticing to cut.  After all, the business agreement among the principals is clear, and the documentation can be dealt with later, or pieced together from forms available on the Internet and cleaned up in the future.

A mediocre outcome from that approach is higher legal costs down the line, when newly engaged corporate counsel needs to sort through errors in existing documentation rather than build from a solid foundation.  A bad outcome is lengthy litigation and missed opportunities.

Unfortunately, I’ve seen the bad outcome play out numerous times over the course of my career.  For example, a seller of a business and a potential buyer might agree to a term sheet one side pulled from Google that looked complete and formed the basis for both parties to endure a months long due diligence process.  Then, when both sides engage counsel and begin negotiation of a definitive purchase agreement, they discover that there are gaps in each party’s expectations of the indemnity cap and escrow, and the transaction that seemed to have been fundamentally agreed upon at the term sheet phase is suddenly up in the air.  In this scenario, engaging counsel during the term sheet negotiation would have revealed that there was no meeting of the minds between the buyer and seller, and could have avoided wasted time, expenses, and for the seller, disclosure of a great deal of confidential information.

An even worse scenario occurs when failure to engage competent counsel to properly document business agreements results in the loss of a key opportunity.  Years ago, a group of founders registered their new business in Trenton and relied on Google for a form LLC Agreement.  The LLC Agreement they used seemed to work well, but without having engaged legal counsel, there was no one to tell them of a recent change to the New Jersey LLC statutes that requires unanimous member approval of sales of all or substantially all of a company’s assets.  This default rule, which could be modified by a properly-drafted LLC Agreement, was not the intent of the majority owner managers, and resulted in the loss of a once in a lifetime cash out opportunity when a disgruntled minority investor vetoed a sale that he was never meant to have the ability to block.

The Internet is chock full of blog posts from professionals in all walks of life providing information about how engagement of that professional is in the best interests of the reader.  Often, that engagement is also in the best interests of the professional.  But take this one to heart, a call now can avoid a much more expensive call later.

For more information, please contact Joseph Valane at jvalane@kleinbard.com or 267.443.4119.