Zane Johnson Of MZA Legal On The Top 5 Mistakes Businesses Make Without Legal Counsel
An Interview With Chad Silverstein
Commingling funds — This is when a business treats funds or assets that belong to the business, as if they belong to them personally. It most commonly occurs when money paid to the business is put into a personal account owned by the business owner. That’s a problem.
In today’s fast-paced business world, the complexity of legal matters can often be overlooked, leading to significant repercussions for businesses of all sizes. From startup ventures to established corporations, the absence of legal guidance can result in critical errors that affect growth, operations, and sustainability. These mistakes range from issues with contracts and intellectual property to compliance and employment law, each carrying the potential for financial loss and reputational damage. I had the pleasure of interviewing Zane Johnson, Esq.
Zane is an attorney and business coach who helps professionals ease into entrepreneurship. In 2021, he founded MZA Legal, a virtual law firm providing business formation, contract drafting and review, and trademark services. When it comes to the legal aspects of running a business, he helps entrepreneurs to cut through their confusion and move forward with confidence.
Thank you for joining us. To start, could you share your “origin story” with our readers? How did you begin your career? What challenges did you face in the early days? How did you overcome them?
Like many solopreneurs, one of the biggest challenges when I started my firm was that I had no help. I was wearing every hat in my business — partially out of necessity (I didn’t have the money to hire anyone else) and partially due to ego (no one else can do it exactly how I want it done).
Eventually I learned that if I was going to run a successful business, I’d need to let go. I’d need to fire myself from the jobs that I didn’t want to do or wasn’t that good at, and hire others to do that work. When I finally did, it allowed me to focus on growing my business, while relying on the expertise of others to help catapult me to another level.
Is there a particular book that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
The Design of Everyday Things, by Don Norman. As a lawyer, I’m essentially a professional problem solver. We’re taught very early on to approach every problem as if it is novel, and unlike any problem we’ve faced before. Taken to the extreme, this approach to problem solving limits your overall impact. You end up trying to stamp out every ember in a campfire while a forest fire rages around you.
This book introduced me to design thinking, and an approach to problem solving that focused on finding simple solutions to common problems. It helped me realize that I could apply the same sort of impact to the law. And widen my impact by creating solutions such as templates, checklists, and assessments, that could serve the needs of many business owners at once.
Do you have a favorite “Life Lesson Quote”? Do you have a story about how that was relevant in your life or your work?
“Go not where the path may lead, but instead go where there is no path and leave a trail” — Emerson
We spend a third of our lives at work. If we’re going to spend that much time doing work, we should at least do something meaningful. We should strive to go somewhere no one else has ever been, so we can look back on that time spent with pride and smile at what we’ve accomplished. I embrace this quote by taking a modern approach in a profession that is notoriously resistant to change.
How have you used your success to make the world a better place?
By leading workshops and creating resources where I freely share my legal and business know-how with other entrepreneurs. (https://mza.legal/free-legal-resources/)
Ok, let’s now turn to the central part of our interview. What is the most common legal mistake you see businesses make due to the lack of proper legal counsel, and what are its potential consequences?
It’s tough to choose one. But I’m big on contracts. Business owners are often in a rush to take advantage of new opportunities, and they end up entering into new business relationships without having a solid contract in place. Down the line this often ends up coming back to haunt them. I see this in many contexts.
I’ve seen situations where a startup was ready to raise money from investors, but getting held up because they didn’t have an assignment agreement from whoever created their key intellectual property.
In another situation, a business owner sold assets belonging to the business without telling their business partner. But there was nothing the business partner could do because they didn’t have a customized operating agreement.
Even something as prevalent as scope creep — where the scope of a project is constantly expanding but the pay is not — can be easily eliminated with a written contract.
Every solid business relationship starts with an agreement — a contract. Without a clear written agreement in place, you’re setting key business relationships with partners, suppliers, and customers, up for failure.
Can you share an example where early legal intervention could have significantly altered the outcome of a business dispute or challenge?
I had someone reach out to me once who set up their LLC, got a business license, and was ready to start a business. Then one day, they learned from a law enforcement officer that their business was illegal in their city. They wondered how, when other people were running the same type of business. They later learned that law enforcement wasn’t enforcing the law on the books because they had higher priorities. Still, this business owner was upset because they felt like they’d wasted their time planning and creating a business that was illegal to operate. Had they worked with an attorney, this could have been discovered before they made that investment of time and effort.
How do changes in digital technology and online business practices complicate legal issues for businesses without dedicated legal advice?
Technology has introduced a wider range of legal issues that small businesses are not used to dealing with. Examples include data privacy and security, dealing with manufacturers and suppliers in other countries, and compliance with website accessibility laws. As technology and how it is used continues to shift (especially with the advent of AI) the laws will shift as well. And it’s going to be difficult, if not impossible, for businesses to keep up without the knowledge of a legal professional.
In your experience, how does the absence of legal counsel impact a business’s approach to contracts and negotiations, and what advice would you give to mitigate these risks?
Businesses that don’t have professional legal advice at their disposal tend to undervalue the importance of contracts. They might get a contract from a friend, or use ChatGPT to draft one. The problem is they don’t know what their contract should include. So they’re unable to identify what these agreement may be missing, leaving them vulnerable and legally unprotected.
When it comes to negotiation, they often lack the confidence to negotiate as hard as they should. They’re afraid to ruin a relationship by asking for too much. Having a lawyer to coach you or step in and represent you can help ensure that you get the best deal possible.
What legal pitfalls do new businesses often overlook during their initial setup and growth phases, and how can they proactively address these issues?
I think the biggest mistake people make is taking legal advice from people who aren’t legal professionals. Accountants, mentors, coaches, family and friends — so many people feel qualified to provide legal advice to others as they start their first business. Especially, when it comes to forming business entities.
Remember, none of these people practice law for a living. Their experience is limited. So what has worked in the handful of situations they may have seen, may not work for you. But if you don’t have professional legal counsel, you won’t know if that’s the case until after something goes wrong.
Here is our main question. Could you list and briefly explain “Top 5 Mistakes Businesses Make Without Legal Counsel” based on your experiences and insights? If you can, please share a story or example for each.
1 . Commingling funds — This is when a business treats funds or assets that belong to the business, as if they belong to them personally. It most commonly occurs when money paid to the business is put into a personal account owned by the business owner. That’s a problem.
If you own an LLC or a corporation, your business is a separate legal entity from you. Therefore, as the business owner, you receive a layer of liability protection that protects your personal assets from the debts that belong to the business. But if you’re treating business funds as if they belong to you personally, you aren’t respecting the legal separation between you and your business. And you run the risk of losing your personal liability protection.
Fortunately, the solution to this mistake is straightforward — open a business bank account. Putting funds that belong to the business into a separate account will help you maintain your personal liability protection. And it comes with the added benefit of making it easier to manage your business finances, and establishing a relationship with a financial institution.
2 . No partnership agreement — Business partners need to take the time to put together a comprehensive agreement. Whether it is in the form of a partnership agreement, an operating agreement, or a shareholder’s agreement, there is too much at stake for business partners not to get an agreement in writing.
The agreement should outline roles and responsibilities, the expected financial contributions of each partner, the distribution of profits and losses, and what should happen if a partner wants to leave or can no longer fulfill their responsibilities. I think business partners often think they can figure these things out later. But when the unexpected happens and interests are no longer in perfect alignment, it can be next to impossible to find a solution that works for everyone.
For example, imagine you run a business along with a partner. If you passed away without a partnership agreement, your children or spouse may have a much more difficult time getting your share of the business from your partner. It’s worth it to flesh out the details of your partnership at the beginning, and an attorney can help make this process simple. We can use our experience to help ensure that business partners are fully aligned, and moving towards a common vision.
3 . Non-compliance with government requirements — Business compliance can be a maze. Businesses have to figure out the regulatory requirements that apply to them in every area from licensing and insurance, to employment and data privacy. Trying to stay on top of it all while running a business can feel like an impossible task.
Frustrated and confused, many business owners push forward without complete clarity on their regulatory requirements. They don’t know what they don’t know. But in business, what you don’t know WILL hurt you. Business owners operating without legal counsel don’t find out that they’re not compliant until they’re faced with the consequences — typically a significant financial penalty.
A legal professional can help businesses keep up to date on their regulatory requirements, and keep their business legal. And by taking this responsibility off your hands, your attorney frees you to focus on serving your customers and clients, and growing your business.
4 . Entering into bad lease agreements — For many new businesses, opening a brick and mortar location is the dream. Caught up in the excitement of opening a physical location, many business owners don’t take the time to fully understand and negotiate their lease agreement. This is a huge mistake.
Commercial leases are much less forgiving than residential leases. The law assumes that any business entering into a commercial lease is a sophisticated party. And that the lease was negotiated at arms length. But for newer business owners who haven’t negotiated a commercial lease before, that’s often not the case.
Lease agreements are often long and they often contain legal jargon that people have never encountered before. And 99% of the time they are skewed in favor of the landlord. Which means if you don’t take the time to negotiate, you’re leaving yourself at their mercy. It’s not uncommon for a business to sign a 5 year lease, only to encounter financial difficulties after 2 years, leaving them obligated to pay the remaining 3 years on the lease.. Or for a landlord to use a harmless breach of the agreement to evict a tenant.
An experienced legal professional can help negotiate more favorable terms, so your dream doesn’t turn into a nightmare.
5 . Not protecting their intellectual property — If your business doesn’t own real estate, your intellectual property is probably the most valuable asset in your business. Many business owners don’t invest the time or money into protecting it. And unfortunately, this can have devastating effects on the business.
Businesses can lose their valuable trade secrets by sharing them without a confidentiality agreement. They can lose their brand to copycats by not registering a federal trademark. And they can lose their inventions to others by failing to register them for patent protection. When you lose ownership over the things that make your business unique, you lost your advantage over your competitors. Not to mention your opportunity to generate passive income by licensing it to others.
Even if you’re trying to DIY it, you can still seek out the guidance of a professional to make sure you aren’t missing anything.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good for the greatest number of people, what would that be? You never know what your idea can trigger.
When I was in law school, I worked with people who were homeless or on the brink of homelessness. I got to hear their stories about the physical and emotional traumas that often led to their ending up in shelters, couch surfing, or on the streets. When I see people on the streets, I see the people I worked with and advocated for. And it frustrates me to see people walk past them as if they don’t exist.
If I was to start a movement, it would start with getting people to smile and nod at the next unhoused person that you encounter. It’s a small gesture, but I think that by recognizing and respecting the humanity in others, you increase your own humanity.
As we wrap up, how can our readers follow your work?
The best way to keep up with me is to visit our website (mza.legal) and join our email list.
You can also follow me on LinkedIn and Instagram, or subscribe to MZA Legal’s YouTube channel.
Thank you for these fantastic insights. We greatly appreciate the time you spent on this.
About the Interviewer: Chad Silverstein is a seasoned entrepreneur with 25+ years of experience as a Founder and CEO. While attending Ohio State University, he launched his first company, Choice Recovery, Inc., a nationally recognized healthcare collection agency — twice ranked the #1 workplace in Ohio. In 2013, he founded [re]start, helping thousands of people find meaningful career opportunities. After selling both companies, Chad shifted his focus to his true passion — leadership. Today, he coaches founders and CEOs at Built to Lead, advises Authority Magazine’s Thought Leader Incubator, and launched and leads an online leadership development community which can be downloaded for free for iOS and Android.
