In addition to paying attention to your year-end tax and financial planning, business owners should also take this time of year to review their legal documents and the types of legal issues that should be looked over at least annually.Your year-end business planning should include a year-end legal review. Even more importantly, by making the review of legal documents an annual concern, you can often prevent legal issues from causing far greater problems later.
Here are some of the some common areas that should be part of your annual legal business review:
- Ownership Documents — Update changes needed to your Shareholder Agreement or for your LLC’s Operating Agreement. Have there been changes in ownership? Do you need an updated valuation? Confirm that insurance is in place to fund any required buyouts.
- Minutes — Company records should reflect all shareholder and board of directors meetings (or member/manager meetings for LLC’s). These minutes should document all major business activities and formally authorize actions taken.
- Owner, Officer and Other Key Personnel Transactions — Company records should carefully document the dates and amounts of distributions made during the past year, as well as the total compensation for each owner, officer and each key player in the company. If the company has made any loans, the terms and conditions of all loans should be documented, to include both minutes and promissory notes.
- Banking and Financing — Review all company loans, usually with institutional lenders, and assemble the documents and minutes detailing the terms and authorizations to sign and borrow. Review business records to confirm that the minutes detail the bank loans and lines of credit.
- Leases — Review business records for all leases. The general details should be in the minutes, including a summary of the parties, the rent, the term and the leased property. Take note of all triggering dates for options to renew or to terminate and the advance notices required.
- Employees — Review so that all employment agreements, including confidentiality and non-competition agreements, are documented. All employees having at will arrangements should sign a statement to that effect. If there are any significant changes to employment benefits, including pension or profit-sharing plans, these should be detailed in the minutes.
- Contracts — Review all current contracts and note those that end during the coming year, whether there are options to extend and/or rights to cancel. Note all calendar deadlines and special terms and conditions.
- Employment Policies — Review employee manuals and benefits and update them based upon legal trends and internal issues. Be certain that all employees receive copies and the receipts by the staff are documented.
- Tax Planning — Review potential tax planning and tax issues with the company professionals. Go over upcoming transactions, the tax impacts and consider individual tax planning for the owners in relation to any proposed business transactions.
- Information Governance — Every company should review and secure its management of information. Consider data security issues, review policies and how to best secure all data at the points of use and storage to minimize a potential system or data breach. Review insurance coverages in regard to computer systems and data breaches.
Is your legal house in order? Try using the year end or start of the new calendar year as your opportunity to take a fresh look at your legal documents and to bring them all up to date.
Bruce Ackerman is a partner at the law firm of Pashman Stein and the chair of its corporate law practice. He can be reached at 201-488-8200 or at [email protected].