By Dominic Davis – Attorney, SW&L Attorneys
When businesses prepare their budgets, they often account for expected costs but may not realize how quickly even a minor legal issue can escalate into a complex and expensive challenge. Hidden costs can catch even the most experienced owners off guard, particularly when it comes to legal expenses. From contract disputes and liability claims to tenant issues and regulatory compliance, these expenses can arise suddenly and without warning, eating into profits and disrupting operations. In this article, we’ll explore some of the most common—and frequently overlooked—legal expenses that businesses face and provide strategies to help mitigate their impact on your bottom line.
Formation and Maintenance
In North Dakota, businesses and organizations can be structured in various forms, each with distinct legal and operational characteristics. The primary types of entities in North Dakota include sole proprietorships, partnerships, limited liability companies (LLC), corporations, and non-profit organizations. Each structure comes with its own set of legal requirements and potential liabilities. One often overlooked expense is the cost of properly forming and maintaining these entities to avoid personal liability.
Setting up an LLC, for example, is widely regarded as a prudent move for business owners and landlords looking to shield their personal assets from potential business liabilities. However, the process of setting up and maintaining an LLC is more complex than simply filing paperwork. Failing to adhere to the legal requirements of running an LLC can expose you to personal liability, effectively piercing the veil of protection you sought to create.
Establishing an LLC involves more than just registration. Business owners must ensure that they follow specific rules, including maintaining proper corporate formalities such as keeping separate bank accounts, holding annual meetings (when required), and accurately documenting important decisions. Without these safeguards, courts may determine that the LLC is merely an extension of your personal dealings, allowing creditors or plaintiffs to go after your personal assets. This complexity highlights the importance of consulting with an attorney during the formation process and periodically throughout the life of the LLC, particularly when making significant decisions, to ensure your business is managed in a way that minimizes personal liability.
Entity Representation in District Court
One of the most frequently overlooked legal expenses for businesses is the cost of legal representation in court proceedings. In North Dakota, legal entities such as LLCs may be prohibited from representing themselves in legal disputes depending on which court the case is filed with. This general requirement was established in United Accounts, Inc. v. Teladvantage, Inc., 524 N.W.2d 605, 606-07 (N.D. 1994), where the North Dakota Supreme Court held that “just as one unlicensed natural person may not act as an attorney for another natural person in his or her cause, an unlicensed natural person cannot act as legal counsel for an artificial person, such as a corporation.” This means businesses must often hire licensed attorneys to represent them in court.
