5 Steps to Reviewing a Legal Document

Thinking about sending a document to your attorney to review it?  I thought I’d take a moment to give a simple overview of the process I use for reviewing a document with a client.  It’s not how every attorney does it.  But I find this process is easy for the clients to digest, and pretty fast (translate: less expensive).

  1. Client receives a document, and sends it over to me to get an idea of what the review will cost.  I typically estimate based on number of pages, but it’s important to also look at the complexity of the language.  If it contains a lot of “lawyer speak” it will take longer to review.  Note: This is why I choose to draft in plain English.
  2. Once I get the go-ahead, I’ll start making my way through the document making redline changes.  This is a process by which any word that is deleted is crossed out with a red line.  Any words added are shown in red.  It’s used to make it very obvious where changes are made.  A good attorney never tries to sneak changes past the other side.  It’s not ethical, and you’re not really doing your client any favors.  You’re only creating an even larger conflict after the deal is struck on terms which were never truly agreed.  Tip: Demand that your lawyer use the redlining features built into MS Word.  Some lawyers actually go through and manually change fonts, etc. to create what looks like a redline.  But it is a nightmare to unravel on the recipient’s end.
  3. While redlining, I also add comments to the margins using Word’s comment feature.  In the old days, we would write a letter to the client saying, “See Section 12(c).  I would recommend deleting this section.”  This is a hassle for the client because they have to flip back and forth between my letter and the document, searching for the applicable section.  With margin comments, the message I need to convey is right there next to the text I’m referring to, making the client’s review of my thoughts much easier.
  4. Once the client has reviewed everything we get on the phone and start going through my changes and comments one by one.  It’s very quick and easy with the comments falling right in line as we go.  This phone call will often lead to a few more changes I need to make to the document.  If it is a quick change, I’ll actually just draft it right on the spot with the client still on the phone.  Often, it’s literally just a word or two that needs to be updated.  If it’s a change that will take some time, I make specific notes on what needs to be changed right there in the text, or within my little comment bubbles in the margin, as opposed to keeping the client on the phone while I type.  The key is detailed notes.  I never assume I’ll remember the conversation in detail.  It wastes my client’s time (and money) if I have to call them back for clarification on something I should have taken better notes on while I had them on the phone the first time.  I draft those as soon as I hang up the phone with the client so it’s all fresh in my mind.  Again, this saves time and saves my client money since I’m not having to re-read through things to refresh my memory days later.
  5. Once the changes are made, we ship it off for signature or to the other side for their review.

So that’s it.  A basic run-down of how I do document review for clients.  Even if you don’t use me for your document review, this gives you some idea of how a document review process works.

Have an awesome day.  And go launch, build and exit your business strong!


Deal or No Deal?

I met with a client to go over an “LOI” (or so he thought) for the purchase of property out of state.  My client had already signed the LOI and was waiting on the other side to sign as well.  The problem was that the document was not an LOI.  It was a contract.  My client had signed a binding contract for purchase of a multi-million dollar commercial property purchase without even having the document reviewed by his attorney.

As background, an LOI is a Letter of Intent.  It is a non-binding document that is later used as a guide to draft a binding contract.  I can have certain sections that are binding legally, but generally it is a non-binding document.  The reason we use them is to get the main points of the negotiation out in the open to be sure that the parties are basically in agreement before spending time and money on drafting a final document.

Normally, a contract of this type would be negotiated through a series of “redlines” where each side suggests changes, and these changes are negotiated.  Many of these changes are simple and approved without any issue.  However, there will always be a few that become contested issues with serious back-and-forth negotiation.  It is an important process, and on a deal of this size it is critical to get that document right.

So in this case, our client is bound to a very large contract which was barely negotiated at all.  All before he even brought it to my attention.  The good news is that the contract is not perfect, but the changes we would have made are not necessarily critical changes.  Yes, I would have greatly preferred them.  But we will be able to make due without them.

Also, one last critical point.  The contract allows for a 30 day due diligence period where the property is reviewed, inspected, etc.  During that time, the contract can be cancelled for any reason and the $100,000 earnest money is returned to my client.  So we have that as a fallback if needed.  However, I generally prefer to avoid terminating under due diligence unless there is a genuine due diligence issue at hand.

That’s all for today.  Have an excellent day.

Launch Strong.  Build Strong.  Exit Strong.


Don't always go for the throat.

I have a client who provides programming services.  When we drafted his agreement that he uses with his customers, we made sure that he retains ownership of any code his company writes until it is paid for in full.  He does a lot of work with startups, so getting paid can be a bit tricky.

He has a customer who is behind by about $200,000 in their invoices.  But they do about $20,000 or more business per month.  So it is true that they are way behind on their bills, but it’s also true that they’ve paid a TON of money to our client over a few years.  So our client came to us for recommendations on how to handle the past due amounts.

We had every opportunity to go for the throat here.  First, we could sue and we’d win that lawsuit.  It’s basic collection.  There’s really no defense to the lawsuit.  Or we could simply hold up releasing their code to them, because we retained ownership of it under the customer’s contract, and effectively shut them down.  They’d get desperate and find the money somewhere and pay us.

But why not look at solutions that actually STRENGTHEN this customer relationship, but still ensures that our client actually gets paid?

Our client took our recommendation and had the customer sign a promissory note for the unpaid balance.  The advantage of this is that it eliminates and bickering over how much is actually owed.  The balance of the note is fixed and in writing.  Simple.  Also, we found middle ground on releasing code.  We would not agree to release any code that hadn’t been paid for.  That was still a deal-breaker.  But instead of seeing the customer’s code as one large ongoing project, which it technically was, we looked at it as a series of monthly projects.  We apply any payment to the oldest outstanding invoice, and release the code prepared under that invoice.  So the customer has a steady stream of code arriving at their door every time they make a payment.  Any failure to pay a new invoice counts as a default under the note, so we isolate these old invoices as past due and work our way through them.  Otherwise, the customer could just keep paying late, but also still keep receiving bits and pieces of their code from older invoices but never really clearing their past due balance.  Finally, we secure that promissory note with a personal guaranty from the owners of the customer company, and we also secure it with stock options in the company.  Our right to purchase that stock is triggered by a sale of the business or its assets, and the strike price is whatever the outstanding balance is on the note at that time.

There are times when you have someone backed into the corner that you have to absolutely go for the kill.  But I think these times are exceptionally rare.  And without doubt, the primary incentive to “go for the throat” is always far more emotional than it is business.  As the line goes from the movie Groundhog Day… “don’t drive angry.”  It makes you feel good to drive your opponent into the ground.  But it rarely actually accomplishes anything tangible.

Have an awesome day,


The Nevada myth.

I spoke to a client a year ago about setting up a real estate flipping business.  He never hired us, and went his own way.  No problem.  We’re always happy to help even if we’re not hired.  But sometimes… they come back.

He attended a seminar on setting up his flipping business, and they offered a plan to set him up with an LLC and everything else he needed.  And “of course” that would be a Nevada LLC.  Because privacy is better in Nevada with less detailed online records, and filing fees are dramatically cheaper than they are in Illinois.

Both true points.  But unfortunately both points fall apart pretty quickly when you apply Illinois law.  The client went to close on his first property and was told he needs to “register his foreign LLC in Illinois.”  Okay, no problem.  Cost?  Exactly the same as it would have cost to form his company in Illinois in the first place.  So now he has paid full Illinois fees, plus Nevada fees.  How about privacy?  Well, his private information becomes public in Illinois as soon as he completes that foreign registration.  You can stop by his house, it’s listed on the Illinois Secretary of State website.  There are some tricks we can use to avoid this (like creating a manager-managed LLC with a generic named trust as the manager) but privacy wasn’t that critical to this client.  He was just annoyed.

So not only is the client now paying annual filing fees in both states, Nevada recently overhauled their fee structure and his annual fee in Nevada is five times what it is in Illinois.  So forming his company in Nevada has turned out to be a total loss, as opposed to the intended savings.  He called me, saying, “You know all that advice you gave me a year ago?  I didn’t take any of it.  Can you help?”  Yep.  We’ll help and we won’t even say “I told you so.”  It’s all part of the job.

In most cases, form your company in the state where you operate your company.  It’s very common to end up having to file in your home state anyway.  This might be because you own property there, do a certain amount of business there, have employees there, or hold a required license there.  But it’s not always a bad idea to choose a foreign jurisdiction.  Here are a few legitimate reasons to consider forming a company somewhere else:

  1. You are seeking investors.  Investors often like seeing Delaware C-Corps to invest into.  They are used to the Delaware statutes, and the C-Corp prevents any surprise pass-through tax consequences.  There is no real-world benefit to you.  But you don’t get their check unless you do it their way.  That alone is a fairly compelling reason to file in Delaware!
  2. You are seeking consistency of law.  If you operate several locations all over the country, it would be nice to not have to drill down on local law for every single deal you put together.  We have a client who does land development deals all over the country.  When it comes to land ownership, local law always rules.  But when it comes to the terms of his LLC operating agreement, consistency is nice.  We form a separate LLC for each deal, and each deal is a little different in terms of how we bring investors in.  It’s nice to apply the same law to all of those individual LLC operating agreements so we’re not having to redraft every one of them to conform to a specific state law, research state law, etc.
  3. You operate a huge number of companies.  In my story above, a client formed one LLC and did it in Nevada to save money on filing fees.  It backfired but even if it didn’t, the savings would hardly have been worth the hassle.  But I have another client with forty-seven LLCs.  He had them all domesticated in Nevada at first, until Nevada dramatically increased their fees.  Then he moved them all to Montana.  With that many companies, those minor savings per company added up to over twenty-five thousand dollars each year.  For him, it was worth it, even after paying us a little bit to move them all over.

Think twice about choosing a particular jurisdiction just to save on filings fees.  Be sure you don’t still have a local filing requirement which would cancel out your savings, and avoid following the trends of where the entrepreneurial podcasts and articles say is the hot jurisdiction.  Take a bit of time to talk to an attorney and CPA and choose the jurisdiction that’s right for you.  There are more factors to consider (like tax) than are listed in this article.

Go make today awesome.  Thanks for reading.


Dispense with the jargon: Go cut deals.

I have a client who called me saying he wanted to bring in an investor who is contributing $150,000 to my client’s LLC.  Once a particular project is done a few years down the road, that investor gets their money back.  My client was so confident that he would do well, that he guaranteed the investor a 12% return on the investment.  And not just a friendly verbal guarantee.  My client was willing to put it in writing and pay it annually.

To my client, this person coming in was an investor and would own part of my client’s LLC.  But I asked him, “So this guy gives you $150,000.  For one year he gets nothing.  But after that you guarantee him a payment of 12% of his investment, paid annually.  After five years, you can pay it off or just keep paying his return of 12% each year.  Right?”

“Yes, that’s exactly right.”

“Okay, well…. that sounds to me like a loan.  Not an equity investment.  Do you mind if I just document it as a promissory note?”  His response was funny.  “Yeah, I don’t care.”  That response sounds so informal, but it’s actually the best possible perspective to take. So many entrepreneurs pour over industry terminology to the point that they are experts at investment jargon, perhaps more than being an expert at earning a profit.

I’m not saying this is a total waste of time.  It’s important to know some technicalities on how investments are structured.  And it helps to speak the language when dealing with VC and other investors.  But an investor generally doesn’t care if you don’t know the securities industry lingo inside and out.  The investor wants to know that you know how to make money in your business.

My client is the perfect example.  While his competitors were out there reading yet another copy of Fortune cover-to-cover, my client found a guy willing to part with $150,000 without even realizing that the investment he scored was a loan.  Who cares?  He scored a deal.  It’s my job to sort out the details, figure out how to label it, and document the deal.  My client just spends his time knocking down more and more deals.

If you find yourself spending more time becoming an expert on investing lingo as you do actually attracting investors, you may want to back off from the jargon for a bit and focus on some old-fashioned deal-making regardless of what your lawyer ends up calling the document that comes out of it.

Go make today amazing,