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Year End Review Of Your Company’s Business Documents

It is imperative to review and maintain certain "corporate formalities"
The Gerber Law Firm > Legal Advice  > Year End Review Of Your Company’s Business Documents

I am frequently asked to assist clients in creating different entities to start new businesses.

— Year End Review Of Your Company’s Business Documents

Most client’s initial concerns surround asset and liability protection, branding (intellectual property concerns), choosing a good name for the business, making sure a domain is available and focusing on what the interface with future prospective clients will look like. Because they are “small,” the owners devote full attention to the product or service provided, the satisfaction of the customer, and getting new business, while devoting little or no attention to the company’s “infrastructure.” By “infrastructure” I mean such things as annual meetings, shareholder agreements, insurance needs (e.g., key insurance and disability), and other business necessities. Those of us who show up every day to work in our business, too often forget to work on the business. While you may have been minding the store, you may have neglected the following areas:

1. It is imperative to review and maintain certain “corporate formalities,” such things as conducting annual shareholders and members meetings and documenting in your company record books not only that such meetings occurred, but the action that was taken at the meeting.
2. Is your company record book up-to-date? If something happened to you, that book is the “road map” for someone coming in to run the business in your absence and the documents there should be up-to-date. Are all major transactions of your company authorized and noted in those records? Would someone be able to determine the identity of those persons last elected/appointed as directors, managers, and officers? Are your stock or membership records accurately reflected? Have you assigned membership interests to a new partner or amended the ownership of others? Some of the small to medium sized businesses I represent have authorized me, on an annual basis, to review the transactions for the past year. I will then note anything of significance in the minutes I prepare of the annual meetings of the shareholders and directors.
3. Is your shareholder agreement or operating agreement showing its age? Is there a need to revise either of those documents because of changes to your business? Those documents, just like your Wills after the arrival of children, need to be reviewed on an annual basis. Almost all shareholder agreements have a formula or some previously set price for valuation of shares or membership units. Whatever the valuation method, it ought to be reviewed annually and modified, as necessary. Even if no change is made, a simple document can be prepared that shows that the owners reviewed the price and determined to leave it alone. Do you own your business with another partner in equal amounts? If so, do you have a dispute resolution provision in the event of a deadlocked decision?
4. Many shareholder agreements are tied to insurance policies on the lives of the owners. Have you reviewed the company’s insurance policies? Do the existing policies provide sufficient funding for the buy-out in the event of the death of a shareholder? What about disability insurance for the key individuals? Can the business survive if a key person is rendered unable to show up for a significant period of time?

You probably have thought of these issues at some time and made a promise to yourself to devote some time to each. Now is the time to ensure that your company’s documents are in good shape.

And now the disclaimer

What, you thought there wouldn’t be one? Nothing in this post should be considered legal advice. Let’s face it, chances are really good that you don’t know me and I probably don’t know you. My aim is simple – to provide the reader with some useful, but general, information about the topic. Do not rely on any information in this post without some assurance that the material is still current at the time it is read and that it applies to your particular circumstances. If you want a legal opinion that has teeth, consult your personal lawyer about your particular circumstances. If you don’t have a lawyer and like what you see here, perhaps you should contact my law office to determine if I might be a good fit for you. To do so, simply click on my name above and you will be directed to my website, or you can reach me by telephone at 832-767-1065. Messages left during non-business hours will be returned no later than the next business day. When responding, please refer to this Blog No. 1.

Since leaving a real estate boutique where I started my legal career, my practice has consisted of a general civil commercial and consumer practice, with a focus on (i) creditors rights (collecting money) (ii) business law (litigation, including collections, and business transactions, including business organization and representation, and sales and purchases of businesses), (iii) real estate (landlord/tenant law, foreclosures, evictions, sale and purchase transactions, removal of judgment liens clouding title to homestead, homeowners and homeowners’ associations), (iv) probate, including determination of heirship, and other post-death procedures, and (v) preparation of estate planning documents (Wills, financial power of attorney, medical power of attorney, and advance directives).

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