Do you get regular health checkups? Of course you do! So why would you neglect your business’s health?
This article will discuss several items that should be reviewed, updated and implemented to ensure your company’s hygiene is up-to-snuff. We’ll focus on some of the most overlooked and underserved company assets that can easily be improved upon, made compliant or added to your organization. A little bit of doctoring now can save your business a lot of money later. Businesses should already be thinking about an exit strategy at the time of business formation. My goal is to help you grow your business profitably while limiting future risk and liability. Let’s get started.
Organizational Documents
Your company’s organizational documents should be kept in one place at your main office. For less than $50, you can purchase a corporate record book that will have sections for each type of record that should be stored, as well as stock or membership interest certificates.
For an LLC you should have copies of your Certificate of Organization file stamped by the state of Utah as well as your operating agreement. An operating agreement is always a wise document to have especially if there is more than one member of the LLC.
For a corporation, you should have a copy of your Articles of Incorporation stamped by the state of Utah as well as a copy of your By-laws.
Buy/Sell Agreement (Shareholder Agreement) is recommended for either type of entity with more than one owner. With a corporation, it is typically a separate document executed by the stockholders. With an LLC, the terms can be included in the operating agreement or can also be a separate agreement.
Meeting minutes are required for both types of entities. Minutes will be taken during annual and special meetings and will reflect decisions made during those meetings.
Election of directors and appointment of officers will typically happen at a corporation’s annual meeting. The Shareholders elect the directors at the annual shareholder meeting and the directors appoint officers at the annual board of directors’ meeting. LLC’s can have a board, however it is not required. LLCs can also appoint officers. The operating agreement will determine when and how meetings are held.
Commercial Contracts
Depending upon the type of business, every company needs at least one solid contract that is will use with its customers/clients setting forth the responsibilities of the parties as well as remedies for breach of the contract, warranties and limitations of liability. This can be in the form of terms and conditions on a purchase order or a separate contract to be executed upon agreement by the parties as to the particular relationship. In addition, consider the following contracts as well:
1099 contractors should always sign a contract setting forth the terms of the services provided. These must be carefully worded so that your contractor does not end up being found to be an employee by the IRS.
Employee handbooks should be in place if you have any employees. These should be updated as the laws change.
Subcontractors should always sign your subcontract agreement setting forth the scope of the work and remedies for default.
Key employees made need their own special contract which could include non-solicitation, non-compete or non-disclosure of proprietary information clauses.
Intellectual property ownership should be addressed via an employee handbook, key employee contract or separate contract with employees/contractors that will be involved in developing intellectual property for the company.
Relationships with Qualified Professionals
Every business should have a comfortable relationship with a commercial insurance broker, a business CPA or accountant, and a business attorney.
Exit Strategy
Ideally, when a business is first formed, it should be thinking about its exit strategy. Issues that should be addressed are:
What is the best type of entity for my business if I want to sell it in X years?
Are all my corporate records accurate, accessible and current?
Have I addressed limiting my company’s liability in all the contracts that I enter into?
Do I have a solid buy/sell agreement that deals with issues of dissenting members/shareholders at the time of exit?
This article addresses just a few issues that business owners face and is not all-inclusive. Don’t try to wing it yourself. SEB Legal can provide you with the support you need as your business grows. Click here if you’d like a consultation with a seasoned business attorney.
About Cathy —
Cathy was most recently Vice President and General Counsel for a large corporation manufacturing specialty products in the chemical, petrochemical, water and wastewater, pulp and paper, and power generation industries. The result: a balanced blend of risk management and value-driven results for long-term potential Ms. Campbell has an extensive background in managing the full range of legal needs for companies in the manufacturing, construction, and oil & gas industries including but not limited to drafting and negotiating all types of contracts—including NDA, MSA, etc.—acquisitions and divestitures, corporate governance matters, and litigation support. Learn More >>