Saturday, August 15, 2009

Legal Assessments: An Introduction from a Relational Perspective

Many businesses simply do not know where they are at legally.  Often, business owners believe that the legal aspects of their business are a thorn in their side that is to be avoided if possible, and dealt with only when absolutely necessary.  However, most business owners also realize that business takes place within the context of law. 

For example, a business’s existence as a limited liability company (LLC), corporation, or partnership, is governed by state legal requirements and responsibilities.  In addition, all interactions between businesses, suppliers, associates, affiliates, employees, contractors, and their clients are contractual arrangements whether or not the relationship is memorialized in a contract.  And finally, business assets such as real property, information, and products, are each regulated by legal frameworks.

With this in mind, a business’s success is dependent on its compliance and exploitation of the applicable legal frameworks.  This post, and the ones to follow, will attempt to explore some of these legal issues affecting businesses from a relational perspective.

The Relational Perspective

Law is about relationships.  Fundamentally, law is the rules and norms that are recognized by courts in prior experiences from other situations, or proscribed by governing bodies as policies.  Those rules and norms cover all types of interactions whether the interactions are intentional contractual arrangements or are the result of general interaction in society.  

Businesses’ commercial activities are also fundamentally about relationships.  These relationships include interaction with the public, with the governing authorities, with other businesses, with employees or contractors, and with clients or customers.  Each of these relationships raises issues about expectations, performance, and enforcement.

While law often is known for addressing the resolution of conflicts which develop when a relationship has a problem, those same rules and norms used to consider what the fair and just resolution should be, also provide a great deal of insight into how a business can engage in its various relationships to accomplish its goals and purposes.

Application

Sometimes businesses view the pro-active application of law as a way to avoid loosing money, or keep from going out of business.  While this is appropriate in many circumstances, and a part of the analysis, such concerns side-step addressing the underlying reasons a business might get into a such a situation, and furthermore, misses the opportunity provided by, and the value available from the application of, legal tools and principles.

Because law is about relationships, running afoul of the law has a lot to do with a real, or perceived, mismanagement of how a business engages in its relationships.  When such problems develop, the law is called upon to resolve the relational conflicts caused by that mismanagement.  This can result in remedies such as requiring compensation or other activities to try to fix the problem. 

But on the other side, because the law is about relationships, it can also be exploited to understand how a business can best manage its relationships and maximize the value of its activities and opportunities to increase its earning capacity.

In short, the pro-active application of law to a business can go beyond risk management to address how a business can best create value-added relationships, protect and preserve assets, and increase its productivity.

Forecast

There are many ways that a business can use legal principles and tools to add value to its operations.  In the next post, I will start to talk about some of the fundamental reasons why a legal business structure, used properly, can be a great tool for businesses—including reasons that go beyond limited liability for the owners and favorable tax treatment.