3 Dangers of Not Understanding Your LLC Operating Agreement

Think you can sign your LLC Operating Agreement, put it in a drawer, and then forget it?

No chance.

Think of your Operating Agreement as the foundation of your business…the playbook for your company.

Need to know what happens if a member leaves or dies? Operating Agreement. What everyone’s roles and responsibilities are?  Operating Agreement.  Resolving disputes among members?  Operating Agreement.

So you can see how if you referred to your Operating Agreement and it didn’t address these situations, or it stated the opposite of what you thought or wanted, it could be a big problem.

“My attorney prepared my Operating Agreement and he/she knows what it says so I’m sure it’s fine.”

Even if we assume your Operating Agreement hasn’t needed to be updated since your attorney first drafted it, your attorney does not make the day to day decisions regarding your business to ensure you are complying with the Operating Agreement.  So let’s a look at some possible dangers of not knowing what your Operating Agreement says:

There Are Requirements Not Being Met.

Your Operating Agreement may outline what happens if capital calls are not made, if there are terms you thought applied but were not written in the Operating Agreement, or how disputes are resolved.

Let’s take a look at a case that highlights this:

Wisner vs. SB Indiana LLC.  In this case, money needed to be raised for the LLC and the Operating Agreement explicitly permitted the manager to make capital calls. A member failed to make his capital contribution and as a result his ownership interest was diluted to zero.  The member sued claiming the dilution of his interest was oppressive.  The court ruled in favor of the manager because the reduction of a member’s interest who did not contribute to a capital call was clearly authorized in the Operating Agreement.  Apparently, the member failed to read the Operating Agreement to understand what would happen if he did not make the capital call.

Your Oral And Other Written Agreements May Not Matter.

Have you had discussions or emails where you agree on terms that are different from what is in the Operating Agreement?  Don’t assume these other agreements are going to hold up in court.

Operating Agreements  usually have language that state that the Operating Agreement supersedes any other agreements that are not explicitly incorporated into the Operating Agreement.

Here’s a case demonstrating this:

Copacia vs. Ginzinger.  A LLC was formed with two equal members to start a development. Member 1 contributed personal funds for the operating expenses and development costs of the LLC, and both Members agreed Member 2 would repay Member 1 50% of the costs and expenses. When Member 2 failed to repay, Member 1 filed a lawsuit seeking his 50% share.  However, the Operating Agreement restricted Member 1’s remedy to a “reallocation of the members’ sharing ratio.” Therefore, Member 1 could not force Member 2 to pay him money, he was only entitled to a greater ownership interest in the LLC (which might be worthless if the real estate deal goes south). Here, the verbal agreements were not incorporated into the Operating Agreement and the court upheld the terms of the Operating Agreement.

Your Rights May Be Restricted.

The previous case also points out how your rights can be limited when there is a dispute. Member 1 had no idea he couldn’t recoup his money, and his only option was to receive a greater ownership interest in a possibly defunct LLC.

The following illustrates how a member’s rights can be limited:

Altobelli vs. Hartmann. Plaintiff-Lawyer sued his law firm that terminated him after he accepted a position as coach of a college football team.  The firm’s Operating Agreement stated any “dispute, controversy, or claim… between the firm and any current or former principal… shall be solely and conclusively resolved by arbitration.” Although the Plaintiff sued the firm leaders and not the law firm itself, the court ruled that an LLC can only act through individuals, and therefore this dispute had to be resolved by arbitration. The Plaintiff was also unable to get a jury trial which may have given him a greater chance of success than arbitration.

Bottom Line:  Make sure your Operating Agreement is specifically tailored to meet the needs of your business, and you understand your rights and obligations under the Agreement.  The courts recognize the importance of Operating Agreements and you should too.  Otherwise, your dispute will ultimately be very costly when lawyers and courts get involved. 

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Happy Single Tasking Day

You do it.

I do it.

We ALL do it.

But should we?

Whether it is the distraction of phone calls, emails, or checking texts or Facebook on our iPhone, we always seem to be doing two things at once.

However, scientific studies have shown that we are not really doing two things at once.  We are just flipping constantly between doing one thing at a time without giving our full attention to either.

Photo Credit: orangenomad.com

An American Psychological Association article summarized a number of studies that show multi-tasking reduces productivity and increases the risks of error.  An article written by Dr. Travis Bradberry, award-winning co-author of the #1 bestselling book, Emotional Intelligence 2.0 (non affiliated link), summarizes Stanford University research, and other research, that shows multi-tasking can cause brain damage and lower your IQ.

If these reasons and research aren’t enough to make you stop, then I have one more BIG reason. It’s common courtesy.  When you answer a call you have made the decisions that the person calling you is worthy of your attention.  If you’ve invited someone, or accepted an invitation from someone, to have a cup of coffee, you’ve made a decision the other person is worthy of your attention.  Once these decisions are made, give him/her the courtesy of your full attention, not intermittent periods of attention.  No one wants to play second fiddle to an electronic device.

And finally, if all this doesn’t convince you, how do you feel when you know a person is multi-tasking and not give you their full attention?

So, as I stated in number 36 in my post, 52 Ways to Make 2018 Your Best Year Ever, celebrate today by single tasking and you will find you actually get more done than trying to do two things at once.

 

I’d love to hear your thoughts 248-455-6500 or agoldberg@ajglaw.com

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Get This Book for a Daily Kick in the Pants

 

For most of us, it’s tough.

Day after day, month after month, year after year, we go to work and try to improve our lot in life.

Over this time there are certainly days where we just don’t feel motivated, inspired, or see visible progress in our careers.  To get through those days, a little inspiration would be great.  If you feel this way, a great book to consider is Jim Stovall’s Wisdom for Winners: A Millionaire Mindset.

For those of you unfamiliar with Stovall, he is quite an accomplished individual.  Blind at an early age, he went on to become an investment banker, entrepreneur, national champion Olympic weight lifter, author of over 20 books, and was honored in 2000 with the International Humanitarian of the Year.

This book is a summary of his weekly newspaper columns he has written throughout his lifetime.  There is no need to read this book all at once.  In fact, I suggest that you don’t.  Read one chapter each day.  Digest it in little pieces day after day; using the columns as motivation when things get tough.  Stovall tells great stories and has great life lessons about such topics such as success, failure, being optimistic, overcoming barriers, how we live.  He also includes great quotes from famous people and thought leaders.  The quote I like the most:

“Monuments are never erected to ‘normal people.’  They are erected to people dedicated to doing one thing exceedingly well.  Find that thing in your life, and avoid the temptation to be ‘normal.'”

This resonated with me because I have tried to instill in my kids to do something great with their skills and talents.  Take risks to stand out from the crowd and don’t just take the same path that society expects, they were told to take by teacher, or that was simply the easiest route.

This is a book I am sure I will read over and over again.  Even better, you can open the book to any page and read a quick chapter for great thoughts and inspiration.  I hope you enjoy it.

Do you have a book that gives you inspiration?  If so, let me know!  I’d love to read it.  And if you’ve already read this book let me know your favorite part at agoldberg@ajglaw.com.

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6 Ways to Easily Screw Up Your 401(k) Plan Compliance

Compliance with IRS and Department of Labor regulations governing 401(k) Plans is filled with landmines and traps for the unwary.

Here are six easy ways you can screw up your own 401(k) plan and, if you’re a plan fiduciary, be personally liable for all the costs and expenses related to the problems.

  1.  You didn’t monitor the plan performance of the investments.  The Supreme Court has ruled that plan fiduciaries can be personally liable if they don’t invest plan assets in a prudent matter.  This is most egregiously found where a company invests a substantial amount of plan assets in its own stock.
  2. All plan updates must be provided to employees in plain language  In a recent appeals court ruling, a company was prevented from changing the terms of its plan (it would adversely affect its employees) because it did not clearly explain the consequences in its document to them.
  3. You forgot to make matching contributions to all eligible employees.  This is very common in large companies, and also where there is extensive employee turnover.  You better have proper HR policies and also record keeping processes to make sure you meet your obligation for matching contributions.
  4. You forgot to timely deposit your employee elective deferrals into their account.  Many companies only make deposits once a month or even once a quarter on elective deferrals.  The IRS prohibits this, and plan fiduciaries are liable for the contributions and also earnings on a late contributions to the plan.
  5. Your plan fails the top-heavy requirements and minimum contributions weren’t made to the non-key employees. This problem is found in smaller companies where there is a great disparity between the top earners and the rest of the company employees.
  6. Simply, you failed to follow the specific terms of your plan.  In this case, like all the other cases where there were problems, you’re obligated to put the participants in a position they would have been if you followed all the rules and there were no defects in the administration of the plan.

So, who is ultimately responsible for this compliance and the financial liability?  The answer is simple: the plan fiduciary.

However, the definition of plan fiduciary is not so simple.  At its core, the plan fiduciary is “anyone exercising discretion or control over the plan.”  But the fiduciary isn’t simply the person named in company minutes as the plan trustee, it can be a plan administrator, the CFO of the company, the person hired by the company to run its plan, or even the custodian of the assets.

If you want to give more money to the IRS and Department of Labor, and to your CPA and attorneys to bail you out of this situation, feel free to make any of these mistakes.  Otherwise, make sure that your annual employee benefit plan audit catches these mistakes (and many others not listed) to avoid cash out of your pocket.

If you’re interested in reading my other posts about 401(k) plans you can find them here and here.

If you have any questions about your companies 401(k) plan compliance call me at 248-455-6500 and or email me agoldberg@ajglaw.com

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52 Ways to Make 2018 Your Best Year Ever

  1. Choose 3 things that made you better in 2017 and focus on how you can improve on those.
  2. Choose 3 things that hindered you in 2017 and determine to eliminate those in 2018.
  3. Get up 30 minutes early.
  4. Implement The Miracle Morning. http://bit.ly/2ku1dyr
  5. I highly recommend the program ManicTime for tracking your time and productivity. It’s awesome.
  6. Purge your LinkedIn Contacts so you only have those with whom you truly want to continue having a relationship.
  7. Start a journal to keep track of your goals. Studies show that writing down your goals and having a specific time frame to complete those goals ensures you will be much more likely to complete them. The SELF Journal5 Second Journal and the Ink+Volt Planner  are all great tools to help you with this.
  8. Get a sunrise clock for a less stressful start to your day.
  9. Take a family photo.
  10. Go see Hamilton or at least listen to the soundtrack. It’s great.
  11. Have a dinner party for 10 of your closest friends “just because” and have a chef come in and prepare the meal.
  12. Buy flowers for someone significant in your life just because.
  13. For every article of clothing you buy, remove two from your closet. It will make it easier to decide what you wear in the morning and you can help others who are less fortunate by donating these clothes to charity.
  14. Think of one word that you want to be the theme for your year and try to implement this word into each area of your life: Ideas include: Calm; Improvement; Enthusiasm
  15. Do you want to be less sedentary at your office? Get a stand up desk.  They are great for your lifestyle and they’ve been shown to improve concentration.
  16. Get a Kindle or the Kindle app on your tablet, and read one book every three weeks (if you need suggestions let me know). When you read, highlight important passages and access them in your Amazon account at (https://read.amazon.com/notebook) and then download them using the Bookcision app https://www.norbauer.com/bookcision/).  This way, you can review them because we never absorb everything we read the first time.  Engage in deliberate practice.
  17. If you commute, get the Audible App and listen to a book on 1.5x speed.
  18. Turn off all electronics 30 minutes before you head to bed.
  19. If you have a sibling, talk to them once a week.
  20. Get actively involved in a nonprofit organization.
  21. Choose to do something completely unexpected and awesome like my brother-in-law who was Bar-Mitzvahed at age 60!
  22. Fail more frequently, so you can learn more.
  23. Just in case… update your resume.
  24. Find two new podcasts that you’ve never listened to and try them out.
  25. Delete all apps from your phone that you haven’t used in the last year.
  26. Speed up your computer by deleting old programs that you no longer use.
  27. Coffee drinker? Buy a coffee maker to make your own coffee at home before you leave for the office. Use the money that you save to buy something to reward yourself for completing a goal or for number 40 below.
  28. Make one call every day to an old referral source or client to schedule a breakfast or lunch and catch up.
  29. Every day, send a thank you note to a client for whom you just concluded work, a mentor, a referral source who sent you a client, or simply a friend or colleague who simply did a favor for you.
  30. Take a day off from work and go to a museum you’ve always wanted to go to.
  31. Start small. Exercise one day a week.  As you create the habit, add another day and then another.  You eat an elephant one bite at a time.
  32. Listen more. Most people think about what they are going to say next instead of actually listening.
  33. Instead of getting on a plane for a trip, find someplace in your state that you haven’t been to and spend a long weekend there. I’m sure you’ll find new and exciting things to do that you never thought possible.
  34. Be present. Take a screen break and turn off your cell phone from Friday 5:00 pm – Saturday 5:00 pm
  35. Focus on the process, not the end result.
  36. STOP STOP STOP (and yes, I am yelling) multi-tasking. It doesn’t work, you’re actually less productive.  And think how you would feel if a person was multi-tasking when talking to you, or when they were working on your matters.
  37. Most successful entrepreneurs pick a strategy and stick to it. A mediocre strategy well executed is far better than a perfect strategy that’s never started.
  38. Give blood to the American Red Cross. You might need it at some point and it’s always great to pay it forward.
  39. Find a mentor to help you grow and be the best version of yourself.
  40. Better yet, offer to mentor someone younger than you so they can also become the best version of themselves.
  41. Be adventurous – Travel to a new state or country. Eat at a new restaurant.  Try a new food.  Take an art class or a cooking class.
  42. Open the door for the person behind you.
  43. Buy the coffee, bagels, lunch for the person in line behind you. Simply ask them to do the same for a person in the future.
  44. Be kind, gracious, grateful, respectful, thoughtful, sincere and authentic, trusting and trustworthy.
  45. Choose to be curious. If you’re not asking questions, reading, listening, then you are not learning.
  46. On-time is late. Be 5 minutes early to your appointments.
  47. Ask yourself what you want to say to yourself one year from today.
  48. Avoid analysis paralysis. You never know if your decision is going to be correct, so the sooner you make it the sooner you find out if you are right.  And if you are not, then you have the opportunity to change course faster.
  49. Shameless plug: Read my daughter’s blog The Lemon Wedge Blog.  It has awesome advice on nutrition and some great recipes.
  50. Get an Easy button from Staples and smack it whenever you solve a problem that’s “easy”. It’s a great stress reliever, gets a lot of laughs in the office, and it’s just plain fun.
  51. Try going analog and keep your To-Do list in a journal or pad of paper. It’s actually much easier than having to open up an app every time you want to check what is on your list.
  52. You are the average of the 5 people you spend the most time with. Make sure you’re spending your time with the right people.

Here’s to making 2018 the most powerful and satisfying year of your life!

Let me know if you implement any of these ideas or have ideas for me to use.  Call 248-455-6500 and or email me agoldberg@ajglaw.com

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3 Simple Strategies to Avoid Interruptions At Work

Work interruptions.

No matter how hard we try we can’t completely get rid of them.

And unfortunately a two-minute interruption does not result in just two minutes of lost work time.  Studies have shown that it can take anywhere from 15 to 25 minutes to reorient yourself to the work you were doing before the interruption.  When you multiply this time by all the interruptions during a day, you can see why you’re not as productive as you’d like.

There are numerous reasons why we are interrupted and even more blogs posts on how to minimize them.  Here is a fantastic article on the topic from mindtools.com: mindtools.com-Managing Interruptions

One suggestion I really like from the article is that you keep an “interrupters worksheet.”  Knowing why you are interrupted is the first step in preventing them.

The article points out that the constant interruptions may be the result of poor processes, poor delegation, or employee’s not taking responsibility.  So, the interruption is merely a symptom of other problems that need to be conquered.

I also found tips six and seven in the article to be the easiest to implement and that can have an immediate impact.  These are simply indicating your “available” and “unavailable” times, and letting people know when they can schedule time with you.  You can implement this by using a whiteboard on the door of your office like one of my clients as shown in the picture above.

Ultimately, avoiding interruptions is not a hopeless undertaking.

There are simple, effective strategies that you can implement today that will have an immediate impact.

If you have other ideas, call me at 248-455-6500 or email me a agoldberg@ajglaw.com.  I’d love to hear your ideas,  and I’ll make sure they are posted.

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5 Podcasts to Expand Your Business and Your Mind

Some of you may be driving for the holidays so I thought I’d share some of my favorite podcasts with you.

You already know I like to read (check out my latest book reviews here), but I’ve been driving a lot lately so I recently decided to explore podcasts as a new learning tool.

Before I give you my list let me say that I have a few qualifiers for the podcasts I listen to:

  • Less than thirty minutes: Because my drive times are usually short.  Anything longer would take me days to get through.
  • Interview-style podcasts:  A great interviewer asks deep, probing questions, which elicit great responses we can all learn from.
  • Continuously produced: That way I don’t get hooked on a podcast only to find out they don’t produce any more episodes.

Here are the five podcasts I’m enjoying right now:

They fall into the same genre as the books I read: leadership, creativity, marketing, and business growth.

  1. HBR Podcast.  This one shouldn’t come as a surprise.  The Harvard Business Review podcast is one of the best known podcasts and it lives up to the hype.  What I really enjoy are the diversity of topics and guests.  For those of you who don’t want to pay for the Harvard Business Review, this is a great alternative.
  2. The Accidental Creative.  Topics commonly discussed include how to enhance creativity in your business (even in the service industry), how to get out of the doldrums when something’s holding you back, and how creativity can play a role in the growth and development of you and your business.  Some podcast are as short as 15 minutes so these are great for local drives.
  3. The Brainfluence Podcast.  This podcast focuses on the neuroscience, cognitive behavior, and behavioral psychology as it pertains to marketing, employee engagement and performance, and creativity and curiosity.  I love the topic and the guests.
  4. Coaching for Leaders.  This is the best podcasts on leadership development, how to be a better manager, how to mentor employees, and how to be an effective executive.  The host and guests are super and if you only listen to one podcast to improve your executive presence and executive skills, this would be it.
  5. The Hidden Brain and You Are Not So Smart. I threw in an extra podcast in there. These are great podcasts because they focus on topics completely unrelated to the business and what I normally read.  It’s a chance for me to expand my brain, think a little bit differently, and learn about issues people are dealing with every day.  These podcast tell great stories in a very entertaining way.

I totally nerd out while listening to podcasts in my car.  I have a dictaphone by my side and when I hear an interesting quote or thought, I pause the podcast and dictate it.  Then, I have my notes transcribed and I review them and do more deep-thinking.  It’s so hard to learn and retain everything you hear in a podcast, that I have found this is the only way for to truly digest, retain, and use the information.

I’m always looking for a new and interesting podcasts.

What are you listening to? 

Call me at 248-455-6500 and or email me agoldberg@ajglaw.com

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5 Ways to Protect Yourself from a Supplier Breach of Contract

My periodic review of State of Michigan court cases continues with an important case Renco Electronics, Inc. v. UUSI, LLC (dba Nartron), dealing with how to respond when a supplier breaches a contract.

Nartron contracted with Renco for Renco to manufacture specialized products; Nartron sold to OEMs.  The contract required Nartron to pay for all products no matter what stage of production they were in.

When Nartron’s OEM contract was pulled, it immediately terminated its contract with Renco, and refused to pay for the work in process.

Renco sued, and Nartron defended its non-payment by asserting Renco used non-conforming components in the product it manufactured.

Resolution of the case required a detailed analysis of the facts and should be a warning to all companies who have any type of ongoing relationships with suppliers.

  • First, this case was under the Michigan Uniform Commercial Code because it was an order for products.  The UCC has special rules that govern the sale of products (and generally doesn’t apply to the sale of services).
  • Secondly, the court recognized that some of the products did contain non-conforming products, BUT, Nartron did not provide proper notice of non-conformity to Renco.  In fact, the court said Nartron’s continued acceptance of the supposed non-conforming goods deprived Renco of the opportunity to fix any claimed defect.  The court stated Nartron could have expected the goods to be precise, but once it accepted them and did not assert a claim that the products were poorly made, it had effectively modified the contract “through a course of dealing.”  It should be noted that Nartron had prior notice of the non-conforming goods and even had made notations in its records that they would continue to accept the products manufactured by Renco.
  • Third, because Nartron failed to give proper notice to Renco, it couldn’t defend its non-payment based on this claim.  By failing to raise their claim for improperly manufactured products, Nartron had effectively waived the objection.  As importantly, Nartron could not even show that the value of the non-conforming goods had substantially impaired Renco’s products.

Here are 5 things you can take away from this case:

  1. Every company must have a contract administrator who continuously monitors contracts and the performance of its vendors.
  2. If there is any specific non-conformity by the vendor, this issue has to be raised immediately to either have it corrected or for the company to preserve its rights to claim a breach of a contract.
  3. The manufacturing side of the business must have a point person to deal with the contract administrator so the administrator knows when the vendor has violated the contract.
  4. Avoid, if possible, paying for work-in-progress. Your obligations should only be for finished goods.
  5. Whenever you think there might be a breach (and even if you are not sure) get your legal advisor involved so you take all the actions you need to in order to preserve your rights.

If you have any questions about your contracts give me a call at 248-455-6500 or email me at agoldberg@ajglaw.com

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What You Need to Know about Changes to the MI Department of Licensing and Regulatory Affairs

 

Winds of change have swept through the Corporations Division of the Michigan Department of Licensing and Regulatory Affairs (LARA).

Starting on October 30, 2017 LARA launched the Corporations Online Filing System (COFS).  The former MICH-ELF filing system is no longer available.

How Does this Affect You?

When you formed your business the State of Michigan gave your business an ID number.

This is the number you used for business filings with the State of Michigan i.e. file your Annual Statements, renew Assumed Names, Change Registered Agents, etc.

That number is no longer active

Please note: this has nothing to do with your taxpayer ID number for the Michigan Department of Treasury or IRS.  Different number.

By now the registered agent for your business should have received a letter from the State of Michigan with a new ID number along with a username and password for the new COFS.

If your registered agent did not receive this letter they should contact the Corporations Division by email at CorpPIN@michigan.gov.

You should update the staff that handles your business filings of the new filing requirements.

Of course, if our office is the Registered Agent then we will let you know of your companies new ID number for your records and handle any necessary filings.

As a result of the new system all of the old LARA webpages no longer work.  Below is a list of the new webpages you will need to use.

Please be sure to update your favorites/bookmarks with the following URLs:

  • Corporations Online Filing System – www.michigan.gov/corpfileonline
  • Business Entity Search – www.michigan.gov/corpentitysearch
  • Rejected Filings Search – www.michigan.gov/corprejectedsearch
  • Mark & Insignia Search – www.michigan.gov/marksearch
  • Historic Card File Search – www.michigan.gov/corpcardsearch
  • Certificate Verification Search – www.michigan.gov/corpverifycertificate
  • Order Request Form – www.michigan.gov/corporderform

There will no doubt be some bumps along with way but hopefully this system will make things easier and faster for filing with the State.

If you or your staff have any questions regarding these changes please contact me at 248-455-6500 or email me at agoldberg@ajglaw.com.

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Lawyer or Sounding Board? Sometimes You Need Both

The client had second thoughts.

He was in the middle of selling his business. Nondisclosure agreements were signed, due diligence was conducted, and her had obtained consents from the vendors and landlords.

Then I received an urgent call from the client, “I need to sit down and talk to you right away.” Twenty minutes later we were sitting in a coffee shop discussing his second thoughts about the sale.

After listening to his concerns, I asked these simple questions:

  • Are the facts and circumstances which led to your desire to sell the business over the summer, still present today?
  • If somebody new came to you today, would you still be interested in selling the business?
  • Once you sell the business, what are you going to do?
  • And finally, are you financially able to enter into this sale?

After each of these questions we had lengthy conversations, where I asked more follow-up questions. By the end of our meeting my client felt 100% sure of his next step. He had Confidence and Clarity. Clarity on what he was going to do next and confidence that he was going to be able to accomplish his goals.

Ultimately, the client decided not to sell.

For me, this conversation reinforced what I have come to learn over the last 25 years of practicing law: the role of a lawyer involves much more than simply providing technical legal advice or drafting great documents. 

Rather, the real value is in the conversation with the clients; helping them think about their issues in unique ways, spurring them to consider alternative ideas, and providing them with a road map and a structure to accomplishing their goals.

The role of a lawyer involves much more than simply providing technical legal advice or drafting great documents.

Sometimes a client needs a lawyer.  Sometimes they just need a sounding board.  And sometimes they need both.  Either way, my goal is to help give you, the client, Confidence and Clarity.

Is there some way that I can help provide you with confidence and clarity?   Call me at 248-455-6500 and or email me agoldberg@ajglaw.com.

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