Business Check-Up – Six Essential Areas to Review

The beginning of the year is a great time to stop and evaluate the operation of your business. The failure to pay attention to the legal details of any business operation can lead to some very expensive consequences. The following are six essential areas you should not neglect.

1. Are your annual reports up to date?
If you are operating your business as a corporation or limited liability company (“LLC”) in the Commonwealth you are required to file an annual report. The annual report for a corporation is due on the 15th day of the third month following the close of the accounting year for your company (i.e. March 15 for a calendar year taxpayer). Annual reports for an LLC are due on the date the LLC was organized with the Commonwealth. If your company fails to file its annual report its charter may be cancelled. Make sure your company’s annual reports are current.

2. Are your corporate documents in order?
Do you know if your corporate documents are organized and up to date? Do you know where your minute book is located? (If you don’t know what a minute book is then you should schedule a consultation with your attorney as soon as possible.) If you had a change in ownership (e.g. did your co-owner leave the company or did a new person buy into your company) – do your corporate stock records reflect this change? Do you have minutes of your annual meetings or minutes which approve major activities over the past year? These are just a few of the items you should review to make sure your corporate records are both current and accurate.

3. Are there any lurking employment issues?
If there are others working in your business do you classify them as employees or do you treat them as independent contractors? The classification of an individual as an independent contractor instead of an employee is an area which has generated a fair amount of controversy over the past few years. If you treat an employee as an independent contractor and are audited by the Commonwealth, you could face significant back tax liability and fines if the Commonwealth asserts that the individual should be classified as an employee.  Do your key employees have non-disclosure or non-compete agreements with your company? If not, do you think they are needed? What would happen if your top salesperson quit tomorrow and went to work for your biggest competitor? A non-compete agreement could help protect you if this were to happen.

4. Have you updated your customer agreements? Do you have one?
If you have an agreement with your customers now is a good time to review the agreement to make sure it addresses all of your key concerns. If you don’t have a customer agreement do you need one? Have you had issues with any customers this past year? If so, are there terms in your agreement which can help address and hopefully prevent these issues from recurring? You may have an agreement that is working very well – and if that is the case – great. However, it is always a good idea to review your agreement or have it reviewed by your attorney to help prevent potential problems.

5. Does your current business structure still make sense?
How do you operate your business? Are you a corporation, a limited liability company, a limited partnership, a general partnership or a sole proprietor? If you have not thought about the business structure of your company within the last few years it is good to make sure your organizational structure provides you with the protection you need.

6. What will happen to your business if you die this year? Will your business survive?
If you want your business to continue after your death it is very important to have an effective estate plan in place. This is very important if you have a child working in the business and want that child to continue with operations after you are no longer around. If you have other children who do not work in the business, it is even more important to have an estate plan in place.

The above six areas are some of the more important points you should address to keep your business running smoothly this year. Taking the time to pay attention to the legal needs of your business is important. If you have a business lawyer you should speak with him or her about these issues. If you don’t have a business lawyer, call me for a no cost initial consultation.

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