Sunday, January 24, 2010

Does Your Business Need a Legal Checkup?

by John L. Watkins

Does your business need a legal checkup? As previously discussed, the nearly universal rule is that it is almost always less expensive to resolve a legal issue early on – such as through a proper contract prepared with professional assistance – rather than trying to fix the issue later, such as through litigation.


Unfortunately, many businesses do not seek legal advice until it is too late for an easy resolution. If your company does not have an in-house lawyer, or if it does not have a regular outside attorney it regularly consults regarding its legal affairs, it may be time for a legal checkup.

Here are a few of the items that should be considered during a legal checkup:

  • Has your business properly maintained its registration with the secretary of state or other authorities? It is surprising how many companies fail to maintain their annual registration and have been administratively dissolved. The result? No corporate shield against liabilities. Most of the time, reinstatement is possible, but you will need to act quickly.

  • Does your business maintain proper corporate or company records? Does it have corporate minutes, minutes of shareholders' meetings, or resolutions in lieu of meetings? Many businesses fail to maintain these basic documents, which again places the corporate liability shield at risk.

  • Does your business properly maintain separate financial and other internal records? Are loans from shareholders or members properly documented? Do you have more than one company, but their records are intermingled? Are proper financial records kept? Again, the failure to maintain and document separation of company business from personal business, or the business of other companies can place the liability shield at risk.

  • Does your business properly document its contracts? Does your business have contracts, or at least terms and conditions, for every transaction? Do these documents protect your company against making unintended warranties and other consequences? Have the terms and conditions been professionally prepared? Have they been reviewed recently?

  • Does your business have procedures in place for handling and documenting potential claims? Are potential claims reported to your insurance company? Unfortunately, many insurers seem to be in the business of denying claims based on any conceivable basis. If you do not comply with notice provisions in your insurance policies – which can sometimes require more than notice of just lawsuits and formal claims – you may be taking an unnecessary risk.

  • Does your business have in place procedures for protecting confidential information and trade secrets? This concern applies not only to your own confidential information, but confidential information of other companies (customers and suppliers are possibilities). Are employees who handle the information subject to non-disclosure agreements? Have the non-disclosure agreements been professionally prepared? Have the non-disclosure agreements been reviewed recently?

  • Do you have other appropriate agreements with key employees? Do you have covenants not to compete? If so, were the covenants not to compete professionally prepared? Have the covenants been reviewed recently? In Georgia, covenants not to compete present unique issues. How about covenants not to solicit your customers if they leave?

  • Do you have procedures in place to comply with legal obligations regarding employment? Do you have a company handbook? Do you have procedures for dealing with employee complaints?

Please note that this is not intended to be a complete list. There are other issues that apply generally, and many others that may apply to your company's potential circumstances.

How do you have a legal checkup? Find a good business attorney in your area and schedule an appointment. Expect to spend some money to have it done right. Although not an insurance policy or a guarantee, a legal checkup will probably save you large amounts of money in the future.

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