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The Importance of Legal Counsel in All Corporate Activities

By: Santiago J. Padilla, Esq.

Most business persons understand the valuable role of a legal professional in important transactions that are entered into by a company. Indeed, most companies will engage an attorney if a lawsuit is filed against the company, if the company is purchasing real estate, or if the company is acquiring another business. However, in this blog I suggest that companies should engage and involve legal counsel in all of the day-to-day activities of a business in order to make sure that its practices and procedures not only comply with the law, but also give the company a competitive advantage in the marketplace. Indeed, in my experience, most very successful companies have either an inside general counsel or maintain a fairly close relationship with outside counsel who plays the role of a corporate general counsel.  If done properly, this suggestion will be cost-effective and productive for the company for the following reasons, among others.

First, by working with an attorney on the day-to-day activities, a company can develop an invaluable strategic partnership, where the attorney's knowledge of the company deepens with each new activity. This "institutional memory" will serve the company in future transactions as well as in litigation involving the company. This type of knowledge enables the attorney to respond more effectively to day-to-day issues and proactively identify and resolve problems.

Second, while outside general counsel will not be an expert on all legal aspects, he or she can be the liaison with the experts that may be needed in a particular area. In fact, the attorney is in the best position to identify when a legal expert is needed and in what capacity. This is very much like a general physician who after reviewing the patient's vital signs and symptoms, refers the patient to a specialist, such as a neurosurgeon or cardiologist.

Many companies simply hire a law firm or attorney when the need arises and on an ad hoc basis. However, this type of practice could lead to operational inefficiencies because no one person will have a full grasp of the legal matters of the company. This practice also creates gaps in the depth of "institutional knowledge" of the outside counsel.

One real-life example could highlight the need of engaging corporate counsel in the day-to-day activities of a business. In this real-life example, a U.S. technology company commenced to build a niche for itself among certain high technology customers in Latin America. The company purchases computer parts and accessories from China and distributes them to companies throughout Latin America. In this example, the company began selling small orders of $10,000 to $20,000 to a particular customer in Colombia. These orders were generally placed with emails exchanged between the parties. After approximately 2 years, the Colombian company increased its orders and finally requested to purchase $900,000 of computer parts and accessories on credit. The U.S. company was excited about the prospect and filled the orders and shipped the parts and accessories. However, for some reason, the Colombian company failed to pay for the computer parts and accessories. Unfortunately, the U.S. company did not have a system or procedure in place for dealing with this eventuality. Specifically, the only recourse that the U.S. company had was to go to Colombia and file a lawsuit in Colombia to collect on its invoices.  However, this was an unnerving prospect because they quickly found that the deck was stacked against them in Colombia.  Of particular importance was that the U.S. could not sue the Colombian company in U.S. courts because the Colombian company argued that it did not have sufficient contacts with the U.S., which was actually true based on the facts of the case.

This could have been resolved by implementing procedures and practies that could have put the U.S. company in a better position.  Specifically, apart from the question of whether or not the company should have extended credit to the Colombian company, the use of order confirmation forms that contained language providing for exclusive jurisdiction, providing for arbitration or for some other method of dispute resolution in the U.S., could have resolved many issues that were faced by the U.S. company. This is precisely why I suggest that an attorney or general counsel of the company should be involved in organizing of opining on the effectiveness of the forms and procedures that a company uses in its daily transactions.

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If you have any questions regarding business transaction or the sales of goods internationally, please do not hesitate to contact me, Santiago J. Padilla, Esq., either at 800-483-7197800-483-7197 or via email at spadilla@frfirm.com.

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