Jan. 31, 2023 – Small businesses play such a crucial role in our communities and the economy that their importance cannot be overstated.
According to a
report issued by the Small Business Administration (SBA) in 2019, small businesses – those with less than 500 employees – accounted for about 44% of U.S. economic activity.
In addition, small businesses accounted for roughly two out of every three jobs added in the U.S. over the past 25 years. And despite challenges surrounding COVID-19 starting in 2020, in the four quarters following the recession, small-business employment grew enough to offset about 60% of the decline in employment,
according to the SBA in April 2022.
As a new year commences, small businesses can continue to benefit from legal assistance as they develop, grow, and build back after the pandemic.
In this article, three attorneys offer their insight into working with Wisconsin small businesses:
Nathan Hammons, director of the Law & Entrepreneurship Clinic (LEC) at Marquette Law School.
Patricia Lane, partner at Foley & Lardner, LLP, in Milwaukee, and an organizer of the Small Business Assistance Project implemented in 2021 by the State Bar of Wisconsin Business Law Section.
Angela Schultz, assistant dean for public service at Marquette Law School and administrator of the Small Business Assistance Project; and
Kelly Gorman, U.W. Law School Class of 2023, is a student liaison for the State Bar of Wisconsin’s Business Law Section.
What are the driving forces behind Marquette’s LEC and the State Bar Business Law Section’s Small Business Assistance Project?
Hammons: The LEC was created in 2015 for two primary reasons: First, to expand curricular offerings to Marquette Law students, with a focus on transactional law. Second, because many entrepreneurs and small businesses in southeastern Wisconsin (and beyond) have great business ideas and passion, yet cannot afford to hire a private business attorney. Our clinic was created to support them.
Schultz: The Small Business Assistance Project was created in 2021 because Business Law Section members really felt a pull to do something concrete to aid small businesses feeling the acute stress of the pandemic. They knew that small-business owners were in new territory (as we all were) and wanted to use their expertise to help people navigate a variety of things – from paycheck protection loan forgiveness to federal disaster loan assistance programs.
Lane: The Small Business Assistance Project was established to address the unique issues small businesses faced during the pandemic. We wanted to help businesses navigate in those uncharted waters, from advising on the applicability of business interruption insurance and counseling on contract defaults resulting from closures forced by the government, to reviewing employee policies. As we got going, we saw that there was a huge need for this program because our clients had many other questions that weren't related to or caused by the pandemic.
What are the biggest concerns today for small businesses, and have those changed over time?
Hammons: In my experience with the LEC, although the pandemic brought questions related to governmental assistance and pandemic-related business restrictions, we found that the biggest concerns of entrepreneurs and small-business owners has not changed, as law can be confusing and intimidating. It helps to have a valuable partner (such as an attorney) when launching and growing a business venture. Small businesses most often seek help on business entity formation, partner/founder agreements, and trademarks. They also routinely seek guidance on business agreements, employment law, financing, licensing and permitting, real estate law, and other intellectual property law (copyright, trade secrets, and patents).
Schultz: Reviewing the spreadsheet of questions presented in the Small Business Assistance Project over the past year, the most common issues raised have been related to entity formation, followed by contracts, intellectual property, and real estate.
Lane: During the pandemic, we typically addressed government mandates and issues related to COVID and how to respond to those legally. Now, because of the downturn in the economy, concerns have pivoted to customer defaults and strategies to address those defaults, as well as potential liquidity issues caused by declining revenue.
After the pandemic, do you foresee a trend toward shorter strategic planning (financial/stewardship, mission, goals) as a way for small businesses to stay resilient?
Hammons: The pandemic forced many entrepreneurs to pivot – such as by changing business models – and to engage in serious, deep problem-solving. Those are two skills that will remain critical for business resilience and success more broadly.
Lane: The strategic plans that I have seen are long-term in nature, but businesses adjust to changing economic conditions by managing the cadence of implementation of their strategic plans. For instance, because of the uncertain economic climate, businesses are pausing certain capital expenditures and other non-essential expenses. Their ultimate goals have not changed, but businesses are delaying their execution.
Hammons: Wisconsin’s new Uniform Limited Liability Company Law (part of
2021 Wisconsin Act 258), which went into effect Jan. 1, 2023, is a big change.
Small businesses – and attorneys advising them – should also familiarize themselves with the
U.S. Corporate Transparency Act, which requires small legal entities, both domestic and foreign, to file information about themselves and the individuals who formed, own, and control them with a division of the U.S. Treasury Department. The reporting due dates are in 2024 and 2025, depending on when the entity was formed, so entrepreneurs (and attorneys) have some time to determine their compliance obligations.
Lane: A development that impacts businesses both large and small is the
discontinuance of the London Interbank Offered Rate (LIBOR), which has been the benchmark interest rate for many loans. LIBOR is being replaced by the Secured Overnight Financing Rate (SOFR), a retrospective-looking benchmark based on transactions that have occurred. Contracts that used LIBOR for interest rate determinations must be amended this year to change the interest rate benchmark to SOFR or another metric.
What advice do you have for attorneys working with small businesses?
Hammons: Put yourself in the shoes of the entrepreneur, and offer guidance that is practical and client-centered.
Schultz: Give your client a chance to share their vision. It can be very exciting to work with someone making their dream come true. Make sure your representation, while it may focus on avoiding risk and pitfalls, also offers opportunities to celebrate what your client is achieving.
Lane: Ask a lot of questions, because frequently through questioning, material issues (and solutions) will emerge that may not have been previously identified.
Heading into 2023, small businesses will continue to play a vital role in the economy. As small businesses navigate an environment with economic uncertainties, they need community members, including attorneys, to help preserve their innovative and entrepreneurial spirits.
This article was originally published on the State Bar of Wisconsin’s
Business Law Blog. Visit the State Bar
sections or the
Business Law Section webpages to learn more about the benefits of section membership.