The Use of the Legal Profession in Small Business

ABSTRACT According to the Small Business Association Office of Advocacy, more than ninety nine percent of the employers in the United States are small businesses. Businesses must operate within the legal system of federal, state, local and foreign governments. Legal representation falls into three general areas: in-house counsel, general representation, and counsel retained for specific and/or complex matters. The small business must find the most cost-effective and economically feasible method legal representation. The purpose of this paper is to analyze the legal needs of small businesses and how they can effectively utilize the legal profession in meeting those needs in an efficient manner. INTRODUCTION According to the Small Business Association Office of Advocacy as reported in its 1997 report, more than ninety nine percent of the employers in the United States are considered a small business, where it has less than 500 employees (Characteristics of Small Business Employees and Owners, 1997). President Clinton states that the development of small businesses is the foundation of the United States economic growth, that virtually all new jobs, 50 percent of employment, 50 percent of private sector output, and a large share of innovation come from small businesses (The State of the Small Business: A Report of the President, 1998) A small business encompasses a wide-range of business types and sizes. A small business can be home-based, sole proprietorship, a partnership, a S-corporation, or a C-corporation. Small businesses can be high-tech venture capital-backed dot-coms, mom and pop retailers, and family-owned manufacturers (Batterson, 2000). There is no standard definition for a small business. It is independently determined from one government agency to another. The Committee for Economic Development created the most practical definition of a small business. To qualify as a small firm under their definition, a business must have at least two of the following characteristics: 1 Management of the firm is independent. The managers are typically also the owners. 2 Capital is provided by one individual, or a small group of people. 3 The area of operations is mainly local, with workers and owners living in one community. However, the market for the product or service need not be local. 4 The size of the firm is small relative to the industry. This measure can be in terms of employees, sales, volume or assets (Boone and David, 1970, pp. 522-523). Business law is playing an increasingly important role in the free enterprise and the small business. Businesses must operate within the legal system of federal, state, local and even foreign governments. Laws that affect the small business continually are being enacted. Small businesses not only have their own unique legal issues, but also have many of the same issues that large corporations face. Most small businesses are in direct competition with large corporations who have large-scale in-house legal departments at their disposal and several outside firms on retainer. Small businesses do not have these costly resources at their disposal. The small business must determine how to effectively utilize the legal profession for its particular business needs in the most cost-efficient manner and yet remain competitive with the large corporations in its industry. The purpose of this paper is to analyze the legal needs of small businesses and how they can effectively utilize the legal profession in meeting these needs in an efficient manner. LITERATURE REVIEW A survey of existing literature has many detailed studies into the management of small businesses. Several studies such as Boone and David (1970), Longenecker and Moore (1987), Curtin (1982), Sherman (1997), and Smith (1982) give an overview of small business management and a hands-on perspective of small business management. …