Keeping Your Business Healthy With Legal Checkups

What is a “legal checkup”? It’s an annual checkup for your business.  Just as with your personal health, things change and checkups catch issues before they turn into serious problems.  A legal checkup is important in keeping your business healthy.

A.      Review Your Entity Status

Is your company’s “entity” status still the right form for you? If you are not incorporated, should you be? If already incorporated, have you been holding annual meetings among the owners? Have you documented action taken during the meetings? When you have a lawyer review your company’s documents, those loose ends can be addressed.

Thinking about adding a new member to the ownership team? Your entity documents should address this – Is a procedure specified?  There should be.  And if there is, the procedures must be followed or else there may be objections later on if disputes arise among the owners.  Think of documents such as your company’s by-laws (if a corporation) or operating agreement (if an LLC) as a contract between owners.  It may need to be updated to reflect new owners, changes you want to make in structure, etc.

If you are a single-member LLC, and are thinking of bringing in another owner, you need an operating agreement in place.

If your company is an LLC and you are planning to be taxed as an S-Corp, does your existing operating agreement reflect this?  There are a few things that can happen to cause your company to inadvertently lose its S-Corp status, and your operating agreement can help protect against that.  Your lawyer can address these issues and help keep your company protected.

B.  Licensing

Has your business changed, such that you are working with different kinds of customers?  If so, you may need a new license for the type of work you are now doing.

For example, if you are an interior designer, do you provide products to your customers? You may need a reseller’s license, otherwise you may be liable for sales tax for what is sold to your customers.

If you are in the construction trades and worked for another company (even as an owner), do you have the right license?  Do you now need a General Contractor’s or Specialty license in your own name? You may not be sure of what you are supposed to do.   Your lawyer can address this in a checkup.

Have industry requirements changed? Are you in compliance?  For example, for painters and remodelers, 2010 marked a big change, with the implementation of “RRP” rules (Renovation, Repair and Painting), applicable to work on buildings constructed before 1976.  The rules include specific precautions to contain possible lead dust. Washington’s Department of Commerce is enforcing the EPA’s rules on RRP and there can be hefty fines for non-compliance.  Sure, you may have your RRP certification, but do you have the right paperwork to give your customers?  You are working hard and don’t have time for the paperwork, but these things can be streamlined.  Your lawyer can help set up a process to make compliance easier.

C.  Contracts

Are your company’s contracts up to date?   Have there been any changes in caselaw or statutory law that might affect them?

Do you have a risk exposure that you were not previously aware of?  For example, if you are an engineer or an architect, did you know that recent decisions by the courts affect how well your contracts might protect you?

Do your contracts address issues that you are concerned about?  You may have learned from business experiences over the past year or two of a few issues that might be better addressed in your contracts – such as payment schedules, etc.

There are many other issues which come up with contracts, including making sure you know of important automatic renewal dates (is there a vendor you’re unhappy with? Don’t get locked into another contract term by failing to notify the vendor by the deadline); warranties and maintenance schedules (was a vender supposed to update your equipment annually? Has it done so?)

Who writes your contracts?  Is it a form that gets filled in a by a salesperson? What terms can the salesperson change?  Do you have an internal review process to make sure you are tracking what the salesperson is committing the company to do?

Determine whether there are business relationships not covered by a written agreement, but which should have a written agreement.  For example, are there long-time customers you started with on a handshake basis?  Family members with whom you initially felt squeamish about discussing business terms and contracts? Things happen. It’s prudent to get those relationships formalized in a written contract.

D. Leases

Leases are contracts, and have a full set of complications of their own. If your company is planning to lease space, it may need guidance on key issues. How long is the lease term? Is it automatically renewed or not? How much notice will you want to give in case you want to relocate?  Should the lease be assignable in case you don’t want to or can’t stay the entire lease term (otherwise you might be on the hook for the balance due on the rest of term if you terminate the lease early)?

If your company has a lease, review it to determine compliance with its provisions – e.g., must your company maintain certain kinds of insurance?  Who is responsible for basic maintenance of the premises?  Who keeps the sidewalk clear?  What is the condition of the property and is there anything that should be reported to the landlord for it to fix?  (notice requirements).  Think of it this way – if someone tripped and fell, who could be held liable? Depending on who had maintenance responsibility in the area where the customer fell it might be the landlord, or it just might be you.

E. Document Retention Policies

“Document Retention Policies” sound dry but are very important and can protect your business when a conflict arises.  Should your company have a document retention policy? What types of documents are used in the course of daily business? (are you a consultant with access to your client’s confidential information?).  Do you have to keep records relating to your employees even after the employee left? If so, how long?

These and many other issues are the kinds of things lawyers look at to keep their clients protected. You hate staying awake at night worrying about the things that can go wrong; good preventative maintenance relieves the worry and helps protect the bottom line.

Schedule a legal checkup today.  Contact the Law Offices of Susan K. Fuller, PLLC to get started.

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