Tuesday, December 16, 2008

Legal Misfortune: $20,000 in Legal Fees to Fix “Technical Mistake”

This article is part of a series of stories about the tragic consequences that can result from common legal mistakes that many entrepreneurs make. These are real-life examples that we have seen in our business law practice.
One of our clients permitted their employees to help them find investors, which is legal under certain conditions. As an incentive to getting the job done, the company paid the employees extra compensation, but only if they closed sales of securities—a technical, albeit, illegal, mistake. The company was forced to disclose this information to state and federal regulators, ensuing in an extensive investigation.
Our client was in the middle of raising capital from angels and had to put the offering on hold until it could resolve the problem. Government regulators are notoriously slow when dealing with these types of violations, and the investigation took us six months to resolve.
Afterwards, angels who had previously been interested in the company were too nervous to invest.
The company ultimately filed for bankruptcy and has remained dormant ever since.
Had they worked with counsel to put a procedure together to avoid this mistake (approximately $2,000 in legal fees), bankruptcy may have been averted.
Learn about 7 Deadly Legal Mistakes that cost entrepreneurs thousands. Visit www.7deadlylegalmistakes.com to get a copy of our free mini course.


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