The corporate law strategies used in your company are one of the most important areas for running your business.
We know, however, that legal matters tend to be an area that isn’t fun for many business owners and executives. You most likely have no idea whatsoever what a corporate legal strategy is, what one you should pursue, or even how it affects your business positively or negatively.
“Three variables are of particular importance to corporate law; the nature of the business, the nature of the laws creating uncertainty, and the company’s stage and status.”
– Elizabeth Pollman, Professor of Law, Loyola Law School
However, we can assure you that after reading this post, you’ll have more clarity about what a corporate legal strategy is and how it can benefit or affect your business.
Avoidance is one of the most common corporate law strategies and it’s one that isn’t always ideal. Essentially, this means avoiding the local laws and jurisdiction of the country your company is registered in when making important business decisions.
This is a common tactic by executives of a company who don’t really understand the law or even seek to understand it. So they’ll do everything in their power to make sure that they avoid or bypass it in order to achieve their desired business objectives.
However, this can prove costly as it can come back to haunt some companies who engage in such an avoidance strategy.
You only need to look at the example of a brokerage firm, MF Global, who used an avoidance strategy to sidestep regulation of their reporting and risk management practices. While they did sidestep regulators, it ultimately came back to haunt them in the end because the company’s lax reporting and dodgy risk management practices contributed to the company going bankrupt.
This is a corporate legal strategy whereby a company understands the law is a mandatory requirement for business success. For many companies, the law is seen as a burden on their business goals and growth, but one that they can’t do anything about.
Examples of this are delivery companies that will pay the fines that are incurred by its delivery trucks each year or companies that pay to create legal documents for NDA’s and other types of contracts. This is simply the price to pay for doing business and it’s one whereby the company needs to comply with the law for operating a business.
For many companies engaging in this strategy, they don’t realise that the law can help them grow their business or really seek to understand how it can.
This kind of legal strategy for a company is vastly different from the previous two. Whereas avoidance and compliance don’t make any attempt to use the law to their own advantage, a preventative approach is one that seeks to understand the law and use it proactively.
The companies that engage in a preventative legal strategy understand that the law can benefit them and they can use it to minimise any business risks and increase business growth. Many may even consult with lawyers to gain insight into how they can use the law to run their businesses more effectively in areas such as risk management.
An example of taking a prevention approach legally regarding intellectual property protection is when a company files a patent. The company is disclosing technical information that can bring the company a future profit, and this gives them more freedom to pursue developing their technology for that specific purpose.
At this point of the strategy, it becomes a case of where the law and legal experts working at the company is seen as an invaluable asset. Using their legal expertise, they are able to advise on areas like minimising business costs, reducing tax payments, and they are generally involved in all strategic decision-making processes that aim to give that business a competitive edge in the marketplace.
Generally, companies that focus on this legal strategy will use legal experts for two primary areas:
- Reducing business and operating costs legally.
- Increasing ROI from certain legal applications like patents or licensing.
In the first area of reducing business and operating costs, legal experts will try to identify ways in which certain legal costs can be minimised for a company to increase their overall gross profit.
In the second area, one of the most common ways ROI is increased is by creating licensing agreements for other companies. Therefore, companies can pay a fee to a company to legally use their product, system, or whatever else that has been licensed.
Transformation is the most complex legal strategy but it’s also the one that reaps the most profit.
Transformation works by incorporating a corporate legal strategy into its overarching business model. So it’s no longer separate but a crucial part of the business’ operating model and strategy for pursuing profit. In other words, the legal aspects are directly related and play a big influence in how much profit a company will generate.
An example of this would be a company developing new technology that would require patents and also a complex licensing agreement as a key source of profit generation. A company could create some technology, patent it, and then license it to other companies for a profit.
In this example, the legal aspect is seen as a crucial part of the business model and process for generating profit.
Final Words: Corporate Law Strategies For The Entrepreneurially Challenged
Hopefully, by now you have a much clearer idea of how corporate law strategies impact on how you run your company and the amount of profit you can generate.
Each of these five key corporate law strategies is used by all companies whether they consciously realise it or not. The key for you is to decide what kind of legal strategy you want to implement in the business model that works for you.
It can be difficult and overwhelming to work out what strategy is best for your specific business. If that sounds like you then get in touch with us and speak to one of our legal experts in this area. After the call, you’ll have much more clarity and confidence about what corporate law strategies you should pursue.