First Quarter 2009
Legal Checkup
In these tough economic times, it is more important than ever that companies ensure that their corporate house is in order. Customers, vendors and suppliers, employees, and the government are all affected by the economic downturn, and when the going gets tough, those that want to pursue claims typically pursue them. Thus, being proactive and ensuring that your company records, policies and procedures are current is more critical then ever. The top ten:
10. Corporate Records – Do you have all of your core records in order? This includes formation documents, tax documents, shareholder certificates, etc. Incomplete corporate records can lead to issues in resolving shareholder disputes, IRS matters and interfere with annual filings.
9. Shareholder/Operating Agreement – This is the cheapest insurance you can purchase to ensure that if you have a dispute with a shareholder/partner, you have a mechanism in place to resolve it. Shareholder/Operating Agreements should be reviewed every few years and updated to reflect the current state of the business and relationship of the shareholders/partners.
8. Intellectual Property – registration of patents, trademarks, copyrights, as appropriate, can protect a company’s most valuable assets. Similarly, failure to police the use of the company’s intellectual property by others can result in the loss of it.
7. Customer Contracts – have all your customers signed agreements, as appropriate, for the services/products provided by the company? Are statements of work completed and attached? Failure to have your customer agreements in place will substantially hinder a company’s ability to enforce its rights against a customer, or protect itself from customer lawsuits.
6. Vendor Contracts – have all of your vendors/suppliers signed agreements, as appropriate, for the services/products they provide to the company? If your company issues purchase orders, or receives purchase orders, are there terms and conditions in place which protect you in the event of a dispute?
5. Confidentiality Agreements – if your company creates or uses intellectual property, have your employees, and as appropriate, have third parties that receive your intellectual property, executed confidentiality agreements that protect the company’s information from disclosure? Even if your company does not use intellectual property, employees should sign confidentiality agreements protecting the nonpublic information of the company.
4. Non-competition/non-solicitation – your customers and employees are your company’s most important assets, regardless of your industry. All employees should sign agreements protecting against the solicitation and hiring of your employees by someone who has terminated their employment. Similarly, if your business is in a specific industry, it may be prudent or necessary to protect your clients from the competition by requiring your employees to agree that they cannot solicit business from your clients after the termination of their employment.
3. Human Resources Files – incomplete employment records can result in disastrous liability in the event of a claim by an employee. All employment related documents, including initial hiring, benefits, reviews and termination records, should be maintained for each employee.
2. Financial Records – this might seem obvious, but it is critical that you have your records in order including, proper categorization of expenses, maintenance of receipts for business expenses, all payroll records maintained in good order, appropriate documentation relating to and tracking of stock options, bonuses and related compensation issues, etc. This becomes especially important if your company has a line of credit or other bank financing.
1. Employee Handbooks and Workplace Policies – no area in your company will require more diligence at this time than workplace procedures and related documentation. As layoffs continue, salary reductions are implemented, and restructuring remains commonplace, the likelihood of incurring a claim from a disgruntled employee has greatly increased. Any flaws in your workplace procedures and documentation will most assuredly be exploited.
We are happy to assist you in any or all of these areas and to correct any deficiencies. Compared to the cost of defending a lawsuit, or correcting a problem after it has already arisen, preventive maintenance is very inexpensive indeed.
