The question “What does a legal entity mean?” varies greatly by location. Although a legal entity is always defined in the same way, i.e. as a corporation or organization with legal rights and obligations, its final form may be different. The other (less obvious) risk is that advising companies could potentially blur the lines between advice that is subject to solicitor-client privilege and advice that is not. In most cases, if you are acting as an external (as opposed to internal) advisor, your communication with your client will be preferred. In principle, however, solicitor-client privilege only applies if the relevant communication between a lawyer and a client serves as legal advice and is expressed confidentially. The application of this rule can become somewhat slippery if in-house counsel acts in a commercial capacity (e.g., as a corporate secretary) and provides commercial or strategic advice. Although the lawyer remains subject to codes of ethics that prohibit him from sharing these conversations with third parties, the communication itself may not be privileged. A limited liability company is a legal entity established at the state level.
An LLC exists separately from its owners – the so-called members. However, members are not personally liable for the company`s debts and liabilities. Instead, the LLC is liable. “This entity is ideal for anyone who wants to do business with a family member, friend or associate, such as running a restaurant or agency,” said Sweeney. “A partnership allows partners to share profits and losses and make decisions together within the company structure. Remember that you will be held accountable for the decisions made, as well as the actions of your business partner. Compliance and legal operations teams must approach the management of these entities from an entity governance perspective. This means keeping a strategic eye on all business requirements and being able to predict the downstream effects of changes in regulations or responsibilities. 4. What are the advantages of a management consulting firm? Where is your business going and what kind of legal form allows for the growth you envision? Contact your business plan to review your goals and see which structure best fits those goals. Your business should support the opportunity for growth and change, not hold it back from its potential. Just one last group of issues that I want to explore in the context of drafting a contract, and that is the tension that arises between business objectives and legal objectives.
This tension is inherent in the definition of a contract. We used to define a contract as a legally binding agreement. The contractual part refers to the transaction. The legally enforceable part concerns the legal aspect of a contract. And that creates an inherent tension. The purpose of the law, the goal of lawyers, is to avoid losses. They want to create a legally perfect contract, while business people focus on creating value. They want to create value and achieve their business goals. And this contractual tension between legal and commercial aspects leads to two key issues.
First, how can we realign our contracts so that business objectives are not lost in the legality of the written agreement? And secondly, how can we make legal concepts more understandable? So let`s start with that first question. How can we realign contracts so that business objectives are not lost in law? As I mentioned earlier, lawyers look at contracts from the perspective of creating a perfect contract. Here is a definition of a legally sound contract. The conventional objective, a final, binding and enforceable agreement. Contract documents should therefore be as legally secure as possible. In other words, lawyers look at the contract through the eyes of a judge. You ask, what happens if something goes wrong? What happens if we end up in court? Will the other party`s promises be enforceable? This is their concept of a legally sound contract. However, what is the problem with trying to make a legally sound contract, especially if you are not the lawyer, if you are the person in the company who has to perform the contract? Why not pause for a second and try to think about the problems that arise when the focus is on the legality of a contract? First of all, you have a long and complex contract. What were once handshake agreements between businessmen can now turn into 40, 50, 200-page contracts. Another problem.
Transaction cost. It costs you a lot of time and money to work with lawyers when drafting the contract. But because most of us don`t understand the legal terms, their meaning and implications, if there`s a problem, you have to go back to the lawyers and ask them what that means? This results in more time and money. The contract becomes the focal point when future disagreements arise, rather than solving the company`s problems. Without this legal contract, if there is a problem in the business, you and the other party would simply solve the problem. You would use your common sense. However, detailed contracts often contain procedures that you have agreed to in the event of a dispute. And so, suddenly, the solution to the problem becomes very legalistic. I remember talking to a CEO of a fairly large company he started recently, and we were talking about contracts.
And he said, in my opinion, that everything contracts do gives you a right of action. And I ignore them. If I have a problem with a customer, we fix it and try to do what makes business sense, not in accordance with the contract. There are big problems when negotiating an intercultural contract, because in some cultures the focus is more on relationships than on a legal document. In some cultures, the signing of the treaty is not the end of a negotiation, but the beginning of a negotiation. And the focus is on finding business partners you trust, work with, and continue to negotiate, recognizing that circumstances change during a contractual relationship. Finally, contracts focus on negative rather than positive business opportunities. So many problems trying to develop a perfect contract. Here is a quote from a recent report by an organization called IACCM, it stands for International Association For Contract and Commercial Management. It is the largest network of contract negotiators in the world. They have about 28,000 members. Members come from about 160 countries.
So they conducted a global survey and here is their conclusion on how companies work today. Most business-to-business negotiations are dominated by discussions on financial issues such as price and risk allocation. This is legality such as limitation of liability and compensation. They do not contribute to the win-win approach that negotiators are supposed to prefer. In other words, what is happening in the world today is that these eminent negotiators who are members of the IACCM claim that we have spent our time here. But it`s not the issues that matter most. So let`s look at an alternative to the way business is done today. There is a group of lawyers who work for a brewing company in Scotland and who have developed a lean contractual approach. And their philosophy is that treaties should focus on the market economy, not legality.
They have a minimalist approach where they have decided that all your contracts should include what the goods and services are selling and what their price is. They have an intellectual property rights clause. But the rest of the contract contains conditions that are implicit by law. We have already mentioned that over the centuries, the law has developed certain implied conditions that are part of a contract and these have been tested in court. They make sense. So why renegotiate terms already implied by the law? Here is a clause of the Scottish Treaty. We have agreed on the essential elements of the Treaty. Instead of investing time and money in negotiating and writing other non-essential conditions, we agreed to allow the general law to regulate these matters, which implies such conditions. And then there is a clause in the contract. There is no minimum duration for this agreement. We will simply do business with each other as long as it remains mutually beneficial.