Many small to medium-sized businesses (“SMB”) find themselves in a bind: as they grow, so do their legal needs, but they’re often not quite large enough to justify the expense of a full-time in-house lawyer. At the same time, the prospect of turning to outside law firms, with no constraints on billable hours, makes many hesitant. This predicament leaves a significant number of SMBs under-lawyered, navigating the complex legal landscape without adequate guidance. The result? A series of avoidable mistakes that can lead to unnecessary legal headaches and financial strain.
A fractional general counsel arrangement can help address these issues, and ensure SMBs get the legal support they need at a predictable cost. Let’s explore five common mistakes made by SMBs, and how fractional general counsel services can transform these challenges into opportunities for legal and operational success.
1) Employment Law Pitfalls
SMBs often find themselves facing employment law challenges, not because they intend to overlook legal requirements, but because they’re stretched thin managing the day-to-day operations. Issues like outdated employee handbooks, misclassifying employees, and not properly handling overtime can quickly become overwhelming. These aren’t just minor paperwork issues—they’re legal landmines that can explode into costly disputes and penalties.
Consider this hypothetical example of a software development company in Miami experiencing rapid growth. Eager to capitalize on the surge in demand, the leadership team decides to expand quickly by hiring several software developers as independent contractors. This decision is made to keep operations flexible and costs manageable. However, the arrangement soon comes under scrutiny from a government regulator during a routine audit, revealing that these contractors worked under conditions similar to full-time employees—they dedicated their full work capacity to the company, followed set work hours, and used company equipment for their projects. The legal oversight to properly classify these workers as employees led the company to face unexpected fines and obligations to compensate for overtime.
This is the type of situation where a fractional general counsel can make a significant difference. Unlike outside lawyers who might only get called in once a problem has already arisen, a fractional GC becomes a part of your team, getting to know your business from the inside. They’re more than just an on-call advisor—they’re in your workplace, understanding your operations, your employees, and your unique challenges. This inside perspective enables them to offer tailored, proactive advice that may prevent many employment law issues before they start.
2) Contractual Missteps
In the world of SMBs, the temptation to cut corners on contracts can be particularly strong. The lean nature of these businesses often means that every dollar and minute saved is crucial. However, this very temptation leads to a paradox where the perceived saving strategies, such as relying on handshake deals or off-the-shelf contract templates, expose the business to significant legal vulnerabilities. These include the risk of disputes over ambiguities and the enforceability of agreements that don’t accurately reflect the parties’ intentions or comply with legal standards.
This is another area in which there is a distinct advantage to having a fractional general counsel closely integrated into the business. Unlike external lawyers who might be consulted sporadically, often when a contract has already been formalized and set in motion, a fractional GC’s ongoing presence within the company culture and operations fosters a more consultative and proactive approach to contracts. This consistent visibility and accessibility mean that business leaders and teams are more likely to seek their input on critical agreements. Instead of reaching for an existing, and often outdated, internal contract template for a new vendor contract, a manager is more likely to think, “Let’s run this by our GC first.” This shift towards consultation helps ensure that contracts are not only legally sound but also tailored to the specific needs and strategic objectives of the business.
A fractional GC, with a deeper understanding of the business’s operations, objectives, and risk tolerance, is well-positioned to draft and review contracts that protect the company’s interests. They can identify potential pitfalls and customize provisions that address the unique aspects of the business and its industry, such as intellectual property rights, dispute resolution mechanisms, and confidentiality obligations. Moreover, their involvement in the day-to-day dynamics of the business allows them to educate and remind team members about the importance of formalizing agreements and the risks associated with informal arrangements.
3) Failure to Keep Up With Legal and Regulatory Compliance
In the rapidly changing legal landscape, SMBs face the daunting task of staying compliant with new and evolving regulations. Whether it’s data protection laws that shift with technological advancements or changes in employment law due to societal shifts, the ground under SMBs can feel perpetually unstable. The consequences of not keeping pace? They range from financial penalties that can squeeze tight budgets to reputational damage that can scare away customers.
By being part of your team, a fractional GC doesn’t just react to legal crises—they anticipate changes and prepare the business to adapt smoothly. Here are a few ways a fractional GC makes compliance a manageable part of your business strategy, rather than a constant source of anxiety:
- Regular audits and updates: They can conduct regular audits of your business practices and policies to ensure they meet current legal standards, making necessary adjustments before issues arise.
- Education and training: By providing regular education and training to your team, a fractional GC ensures everyone understands their role in maintaining compliance, whether it’s handling customer data securely or following health and safety protocols.
- Strategic planning for future changes: With their ear to the ground, fractional GCs can offer strategic insights into upcoming legal changes, helping your business stay ahead of the curve. This might mean revising contracts, updating employment practices, or adjusting privacy policies well before new regulations take effect.
4) Intellectual Property Oversights
For SMBs, trademarks—encompassing brand names, logos, and unique identifiers—are foundational to their market distinction and competitive edge. Protecting these assets begins with proactive registration, setting the legal stage to effectively counter imitations. Yet, as the business landscape evolves with new entrants, the ongoing vigilance in monitoring and enforcing against trademark infringements becomes critical for preserving the brand’s integrity and value.
Imagine a scenario involving a fast-growing franchise known for its unique dining experience and distinctive brand. As it begins to gain traction and expand into new markets, the franchise discovers that another restaurant chain has started using a strikingly similar name and logo, leading to customer confusion and diluting the original brand’s appeal. Without a solid foundation of trademark registration or a vigilant strategy for monitoring and enforcement, the franchise finds its market position weakened. The mix-up not only diverts potential customers to the competitor but also erodes the hard-earned reputation of the franchise. The absence of proactive trademark protection leaves the business with limited legal options to address the infringement, resulting in significant revenue loss and a tarnished brand identity.
This cautionary tale highlights the importance of a sophisticated approach to trademark protection—one that goes beyond mere registration to include constant monitoring and decisive action against infringements. Here, the expertise of a fractional general counsel proves invaluable. With a deep understanding of the business and its intellectual property, they spearhead a comprehensive trademark management strategy. From navigating the registration process and keeping a pulse on the market to managing enforcement actions, their proactive and tailored approach ensures the brand’s trademarks remain a robust asset.
5) Over- or Under-Investing in Legal
SMBs often find themselves at a crossroads when it comes to legal services: the high cost of hiring full-time legal counsel seems impractical, yet the risk of under-investing by avoiding the cost uncertainty of outside counsel can leave them vulnerable. This dilemma is not just about balancing the books; it’s about ensuring the business has the right level of legal support to protect its interests without draining its resources.
Both scenarios can have detrimental effects on a business, financially and operationally. An over-investment can divert funds from other critical areas of the business, such as product development or marketing, limiting growth opportunities. Conversely, under-investing in legal services can result in costly legal battles or compliance issues that could have been prevented with proper legal oversight. This precarious balance highlights the need for a solution that provides both effective legal protection and financial viability.
Fractional general counsel offers precisely this solution. By providing on-demand legal expertise tailored to the specific needs and scale of the business, fractional general counsels bridge the gap between over- and under-investment. This model allows businesses to benefit from proactive legal strategies without the financial burden of a full-time salary and benefits. Fractional general counsel can scale their involvement up or down based on the business’s changing needs, ensuring that legal support is always aligned with operational requirements and budget constraints.
Conclusion
SMBs face a myriad of legal challenges that can impact their growth, reputation, and operational integrity. From navigating employment law intricacies and contractual agreements to ensuring compliance with regulatory changes and protecting vital intellectual property, the stakes are high. The role of a fractional general counsel is as a strategic solution to these challenges, offering tailored, proactive legal oversight that aligns with the unique needs and budget constraints of SMBs. By integrating a fractional general counsel into their operations, businesses can navigate these legal landscapes with confidence, safeguarding their interests and securing their competitive edge in the marketplace.
