Law Student Division - Student Lawyer September 1999

Hot Practice

BY MARGARET GRAHAM TEBO

Bit by the entrepreneurial bug? Small-business law might be the specialty for you

The title "lawyer" frequently has an adjective in front of it. Lawyers are "environmental lawyers," "health-care lawyers," "entertainment lawyers," you name it. To thrive, lawyers often find it necessary to practice a specialty—to find a niche.
This new column will explore some of the fastest-growing specialty areas in the law to help you decide which adjective to attach to your law degree.

THE PRACTICE OF SMALL-business law, according to those who do it, requires a lawyer to be part psychologist, part business consultant, part venture capitalist, part marketing whiz, and, oh yes, part lawyer. Take the example provided by small-business practitioner Dennis Jacknewitz.
One day, an auto mechanic, a secretary, and a stockbroker walked into his Belleville, Ill., office and told him they wanted to start a day-care center. They asked Jacknewitz to form a corporation for their new business entity.
But rather than merely take his new clients at face value, Jacknewitz began to question the trio to determine whether incorporation was in their best interest. Perhaps, he thought, some other form of business entity might provide the liability protection the prospective owners sought, while providing better tax and other benefits.
"When most people think of starting a business, they automatically think they need to be the ABC Company, Incorporated," Jacknewitz says. "Well, maybe they do. Or, maybe they’d be better off as a Limited Liability Company (LLC), or a partnership."
In the case of the day-care owners, the solution turned out to be more complicated. Because of the potential liability involved in caring for small children, as well as for tax reasons, the group ultimately ended up forming a real estate holding corporation to own the building housing the day-care center. That entity then leased the building to a separate LLC that actually owned the center.
Jacknewitz’s clients—small-business entrepreneurs—are of a growing and diverse breed in the U.S. economy, which bodes well for the lawyers who represent them. According to the U.S. Small Business Administration, nationwide in 1997 there were 5.4 million businesses with at least one employee besides the owner and 10.5 million self-employed individuals. Of the businesses with one employee or more, nearly all, 99.7 percent, were classified as "small businesses"—defined as those with 500 or fewer employees.
Between 1987 and 1996, the number of women-owned businesses increased 78 percent, to 7.9 million. African-American-owned businesses jumped 46 percent, while those owned by Hispanics jumped 83 percent. The number for Asians and Pacific Islanders, American Indians, and Alaskan Natives also jumped 61 percent. New incorporations were up 1.6 percent in 1997 over the previous year, as were business failures—16 percent more small businesses failed in 1997 over 1996.
The legal and related issues small businesses face are numerous. With a bit more probing, Jacknewitz determined his day-care center clients also needed help finding financing, setting up tax-effective bookkeeping, obtaining insurance, and even determining what sorts of licenses they would need from state and local authorities in order to open for business.
He referred the tax and insurance issues to an accountant and an insurance broker. For the financing, he pointed the group toward several nontraditional sources of funding, since banks will rarely lend to brand-new, untested businesses. He investigated the licensing issues himself. Besides the usual business licenses, his clients needed background checks from the state’s Department of Children and Family Services, a certificate from the state Department of Education, and other clearances they hadn’t even considered.
Jacknewitz even found himself counseling his clients about potential problems with the site they chose, noting that a national day-care chain already had a facility nearby.
Jacknewitz also guides his clients in issues such as estate and business succession planning, as well as other areas they often fail to consider up front.
"Most entrepreneurs are great idea people. It’s the details where they get fuzzy, and that’s where they need a lawyer who can show them the big picture and help them make informed decisions," Jacknewitz says.
Charles Lee, a small-business lawyer in Hutchison, Kan., agrees with that assessment. He notes that the two biggest factors contributing to the failure of small businesses are undercapitalization and the business owner’s inability to actually manage the business. Consequently, Lee observes, the lawyer must act as adviser, and even devil’s advocate.
"You’ve got to understand the clients’ goals and be much more involved in their whole endeavor than with any other type of legal transaction," he says. "You need to get them to think about what if things don’t go exactly as planned, and what happens then."
Although representing small-business owners is not always the most lucrative practice, it has definite advantages. Lawyers in this specialty say benefits include the chance to work with people full of hope and promise, rather than just those with problems (though, as noted above, small-business owners do sometimes need help untangling their business operations when their businesses fail).
"You get to see a lot of different things and have a lot more variety in your work, and you get to feel as though you’re helping to build something in a positive way," says Haven Stuck, who represents many small businesses in his Rapid City, S.D., practice.
For those interested in pursuing a niche career representing small businesses, all three lawyers recommend courses in business organization, estate planning, commercial finance, and employment law.
Although opportunities to practice small-business law exist at some large firms, the lawyers interviewed agreed that the small- to medium-sized firms offer the best opportunity for those interested in this sort of practice.
Lawyers themselves have become more entrepreneurial in recent years, as a tight legal market has prompted the more inexperienced ones to open their own practices after law school. For those who decide to make small-business law their niche, networking with other professionals to find clients is key.
Jacknewitz suggests attending continuing legal education courses and getting involved in other bar association activities. When one isn’t sure how to approach a particular situation, he or she should ask a more experienced lawyer, Jacknewitz says.
"I’ll try to help any young person, because I remember how it was when I didn’t know anything," Jacknewitz says.
Stuck advises new lawyers to get involved in the community to market their practices.
"Join the Chamber of Commerce, the Rotary, the Optimist Club," he says. "Exchange business cards with accountants and insurance brokers and bankers, and make referrals to each other. Be your own first client, and apply what you learn running your practice to the representation of your clients."

Margaret Graham Tebo, a former Student Lawyer student editor, is a writer, lawyer, teacher, and literary agent in suburban Chicago.