Here is another business law offering that I published in our local Corona Business Monthly. We come across many business issues in our Trust and Will litigation practice, so it never hurts to discuss business law concerns.
Stress can affect wellness. And legal problems can bring the kind of stress most people would rather avoid. But have you ever wondered if you would pass a legal check-up? (Probably not, because there are far more pleasant things to think about.) Here is a business check-up list that should be reviewed at least once every year:
- Annual Minutes. This is an easy one. If your business is any type of entity, such as a corporation, limited partnership, general partnership, or limited liability company, you should document the actions of your business at least once every year. This is referred to as “corporate formalities”, but it applies to all types of business organizations—not just corporations. And it’s easy to complete, usually just a page or two consisting of your activities over the past year (major activities), that are then approved by the governing board.
For example, a corporation will have minutes for the Board of Directors and minutes for the Shareholders. LLC’s will have minutes of the Managers or Members. Partnerships can have minutes of the managing or general partner, or of all the partners. The more you write down, and the more often you create minutes, the more likely your entity will be regarded as having met the necessary corporate formalities, which protects you from creditors of your business.
- Lease Agreements. If you have a lease for the property or office space in which your business operates, it’s helpful to review the lease terms at least annually. Many leases automatically implement changes each year, such as an increase in rent, a possible increase in common area charges, or a decrease of benefits to the tenant such as tenant improvement allowances. Also, many lease terms have a detailed procedure for exercising an extension to the lease term, which may require written notice to the landlord anywhere from 30 days to 120 days or more in advance of the lease termination date. Therefore, reviewing the lease terms helps ensure that you will not miss an important deadline or forget an important rent increase. It only takes a brief review of the lease to ensure you are on track.
- Business Agreements. As with leases, many business agreements have terms that automatically apply at a certain time in the future. The Agreement many automatically renew, or autormatically terminate, without advance written notice. Or there may be changes in price that kick-in without notice. Whether the agreement is for your vendors, employees, officers, or business partners, it is important to review those agreements from time to time.
In fact, it never hurts to prepare an Agreement summary where you can review the terms of each Agreement in a single spreadsheet or data table. However you care to organize the information is up to you, but taking the time to review your key business and employment agreements will prevent a forgotten term from surprising you in the future.
- Employee review. Many businesses neglect to perform annual reviews of their employees. Is it mandatory? Yeas and no. In many industries annual reviews are not legally required, but in every business they are highly recommended. An annual review procedure helps you keep tabs on employees on a regular basis and provides a chance to review each employee’s job performance, be it good, bad or otherwise. If a dispute arises in the future, the annual review process should help document any employee issues you have had in the past. If you operate without an annual employee review procedure, you do so at your own risk because you will not have any documentation to support your actions in the event you terminate an employee.
Annual employee reviews also have a positive side in that they provide a mechanism for you to praise and reward good employees too. Setting up a procedure for you to review employee performance on a regular basis (and at least an annual review), will prevent many problems down the road.
- Licensing. There are many businesses that require industry specific licensing, from contractors, to real estate brokers (and lawyers, doctors, dentists, financial planners, etc.). And every business must have a business license from the City in which they operate. Whatever licensing your business requires, you should check-up on your licensing requirements every year and be sure that nothing has changed that would cause the licensing to become invalid.
For example, when hiring employees, there is an obligation to purchase workers’ compensation insurance. For some industries, such as general contractors, failure to have workers’ compensation insurance will put their licensing in danger of being revoked. So any changes that businesses makes over the course of the year should include a quick review of licensing requirements to be sure there are no hidden traps that could cause the licensing to fail.
- Taxes, Taxes, Taxes. Every business is taxed by multiple authorities for multiple types of tax. Many businesses work with tax professionals to ensure their income tax, use and sales tax, and employment taxes are properly reported and paid. But of course there are other taxes to deal with, such as business taxes imposed by each City in which a business operates, property taxes imposed by the County on a businesses’ property, and so on. Most taxing authorities make annual reporting a mandatory requirement. But it’s also a good time to review what your tax liabilities are and how best to plan for those taxes in the future. There may be changes in the way that you conduct your business or report your income that could result in lower taxes.
Most businesses wait until the end of the year or until tax time (March to April if you’re reporting on a calendar-year basis) of the next year to ask these questions. Unfortunately, trying to do tax planning when your tax professional has a mountain of returns to complete and file is not very productive. Take the time now, in the middle of the year, to discuss your tax liabilities with your tax preparer and find out if changes should be made for the coming year.
- Health and Safety. Some businesses must comply with stringent regulations for the health and safety of their employees, such as OSHA requirements. But there are health and safety issues for every business, even those that are not directly overseen by a regulatory body such as OSHA. Every workplace has its hazards, and some prevention can go a long way to protect the health and safety of employees—and thereby protect the legal well-being of the business.
For example, having first-aid kits available in the workplace that are appropriate for the type of dangers employees may encounter in the workplace. Even in an office environment, a well stocked first aid kit can be helpful to have in case an accident occurs. Once safety measures are put in place, they should be checked, restocked, and inspected at least annually to ensure they are available when the need arises.
So how does your business measure up against this legal checklist? There may be other legal issues affecting your business on a regular basis, but these few items of regular preventative maintenance will help keep your business healthy over the years to come. Here’s to the good health of your business.