Platt Perspective on Business and Technology

Consulting assignment life cycle 20: incorporation, partnerships and related legal mechanisms 2

Posted in career development, consulting, job search and career development by Timothy Platt on June 24, 2012

This is my twentieth installment on consulting and the consulting assignment life cycle (see my Guide to Effective Job Search and Career Development – 2, postings 225-243 for parts 1-19.) I began a discussion of incorporation and related legal mechanisms in Part 19 of this series and as a part of that, I listed and at least briefly discussed a series of reasons why a consulting practice might incorporate. My goal for this installment is to delve in greater detail into one aspect of that: liability protection and the way in which incorporation can reduce personal liability risk on the part of owners and officers as they conduct business and provide professional services. And I start with a simple, basic question.

• What can go wrong for a consultancy and a consulting assignment, where the separation of personal and business liability of incorporation would offer positive value?

The basic answer to that in brief is that incorporation, and I add limited liability partnerships and other legally defined structures, provide protection from risk resulting directly or consequentially from business practices and/or activities that take place when working in fulfillment of work assignments.

As a quick and I add partial list of possibilities for that, I include here:

• Challenges from clients of loss of control or misuse of confidential business intelligence or proprietary business processes, etc. Here, claims might be made against a consultant and their firm, arguing that the consultant was in some way responsible for breach of confidentiality or loss of proprietary information-based value to the hiring, client company.
• Challenges that can stem from serially working with competing organizations when working widely within a single competitive industry. This also means at least perceived loss of value to the client and their attempt to gain recompense from the consultant for that.
• Challenges stemming from possible client dissatisfaction, where for example they feel that a consulting product provided cannot readily scale up as expected and as they claim was promised. Once again, this means loss of value – in this case expected new value coming from the work performed by the consultant.
• Challenges based upon claims of unexpected emergent problems, such as information security breaches that might have occurred as a result of software systems provided by a consultant. This is a perhaps more open-ended basis for claimed loss of value to the client, and for this point I add that security liability and responsibility should be discussed in detail in the consulting agreement, and certainly when a consultant is hired to significantly add to or modify structures or systems in a client’s information architecture or its implementation (see Part 3: consulting clients and consulting assignments for more information on consulting agreements as contracts per se, and on what should go into them.)
• And as noted above consider this list as just a few of many sources of potential disagreement that could potentially be brought to court.

This all can be reduced down to three basic questions:

• What risk management issues can arise that are particular to consulting and consulting practices and policies?
• What more generic business risk issues should be considered that consultants and consulting groups should be aware of and prepared for as possibilities?
• And how can this risk be formally and structurally limited without impinging on the consultant’s business effectiveness or competitiveness?

Know what options are available as to type of corporation that you might at least potentially enter into, and which of them would apply to business practices of the type that you would professionally pursue. In the United States for example, certain types of partnership options are only available as corporate structures to accounting and law firms. And as outlined in business incorporation: an international perspective and in types of business entity, as outlined by country there are a seemingly endless number of options and certainly if you consider the range of business types that can be set up globally.

As noted in Part 19 of this series, seek out professional legal counsel to help you decide what type of corporate structure would best meet your liability reduction and other needs, and as cost-effectively as possible. Note that this can increasingly include what country you incorporate in as well as where you would do so within a country (e.g. should you incorporate in Delaware or the home state of one or more owners/corporate officers if you do this in the United States, and why.)

To balance this discussion out it is also important to note some of the issues and potential risks that would not in most cases be covered by the personal risk liabilities contained in business incorporation. It has to be assumed that nonprofessional, interpersonal activities and behaviors that take place or that as alleged to have taken place would not be afforded personal liability protection through consulting business incorporation. This would, among other things include behavior that could be construed as illegally discriminatory against a protected group, and in the United States as an example, that would include apparent discrimination on the basis of race or religion, gender, age and other identifying factors. What is protected, and what types of behavior face risk of legal action can vary a lot depending on where you work. So for example in Thailand it is illegal, and even potentially punishable by death to speak out disparagingly against the monarchy. And any discussion of this sort has to include consideration of behaviors that can be considered sexual harassment, and I note in this context that what in one culture might be considered harmless flirting can be viewed and accurately as harassment in another. Know and understand the cultures you work in and those of the people you work with and be respectful of boundaries, erring if necessary on the side of caution and circumspection.

I am going to turn in my next series installment to the issues of professionalism and professional image, and to the issues of developing a consulting brand. Meanwhile, you can find this and related postings at my Guide to Effective Job Search and Career Development – 2. I have also posted extensively on jobs and careers-related topics in my first Guide directory page on Job Search and Career Development.

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