If you own or run a small business, each new year is an exciting time. After reflecting on the past year’s successes and failures, it is a great time to set goals for the business going forward into the new year. The new year brings new possibilities for every businessperson. It also is a time to reassess how the business is performing, and what areas might need change.
From a legal standpoint, the new year is the best time to do a quick check up of your business’s day to day legal issues. And depending on what you might determine, your business might be ripe for a legal tune up in the new year.
If you are a small business owner, here are three things to review during the new year:
- Corporate formalities. If you’re running a small business, you do have it set up as a corporate entity, don’t you? If not, stop what you’re doing, set up an appointment with your legal counsel and/or CPA, and discuss with them what legal entity may work best for you given your unique situation. Presuming you do have your corporate entity set up, use the new year to make sure you are up to date on all of your corporate formalities. Specifically:
a) Have you held an annual meeting of the entity in the past year? If not, hold one. For most small businesses, a corporate meeting will be an informal affair: there usually aren’t many shareholders, and you all know each other and what is going on. But it’s a good time to put down to paper that you’ve met, you’ve elected/reelected your corporate officers, directors or managers (as the case may be), and to document any other corporate changes which might have taken place over the past year that you’ve failed to formalize. What if, as many business owners, you are the corporation? I.e., you’re the sole shareholder, sole officer, and sole director? It is still good practice to show a meeting taking place. It can be as simple as reciting, on one page within your corporate minutes book, that the shareholders and directors met, reelected officers and directors, and reviewed the corporation’s financials. If your business is sued, often trial lawyers will attempt to break through the protection of the corporate shield to attempt to sue the business owner as well. One way a lawsuit can potentially pierce the corporation’s protection (in legal terms, called “piercing the corporate veil” is by proving the corporation was not operated as a separate entity, and one of the factors in attempting to prove that is the failure to follow corporate formalities by having a meeting. A meeting is a simple thing, and can take just a few minutes. Take care of that at the beginning of the new year.
b) Check your state’s corporate registry to make sure you’ve filed all of your required annual filings. North Carolina requires that for-profit corporations and LLCs file an annual report each year. The report can be filed online, and takes mere minutes. It is easy to let the annual report deadline slip by without filing, but let it slip more than once, and you may find out that the Secretary of State has dissolved your corporate entity, meaning you have no corporate protection.
- Review ongoing and repeat contracts. You probably have service contracts where vendors serve your business (e.g. phone, internet, payroll, accounting), and you may also have contracts that your business has entered into to create goods or services. These contracts should be periodically reviewed, and the new year is a perfect time to do that. Reviewing your contracts periodically will help your business run smoothly. First, it will help keep you apprised of any dates and events looming on the horizon, such as termination dates, renewal dates and performance dates. But just as importantly, reviewing your contracts in the new year may help you improve your business performance going forward. If you are selling goods and services on credit, are all of your customers’ credit applications up to date and properly executed? If your business extends credit, and requires personal guaranties from your customers’ owners, do you have those executed guaranties in your file? The new year is a perfect time to reacquaint yourself with your business contracts, and to make sure that going forward, you are legally in good shape.
3. Estate and succession planning. If you own a business, and have not yet created estate planning documents, do so immediately! But even if you have done estate or succession plans, the new year is a perfect time to review them. Too many people wait until a crisis hits to look for their will, only to discover it’s been misplaced or lost. Sometimes, your recollection of your estate plan (I think our will leaves some money to our church, doesn’t it?) may not square with what you actually did. Alternatively, you may know what’s in your will, but circumstances have changed and require a change. Looking over your estate and succession planning documents annually will keep your plan foremost in your mind, and will keep them up to date.
Running a business isn’t easy. The legal side of running a business, however, can be simplified by keeping on top of legal matters. Use the new year to bring your business and your estate up to date. It will help your business and your life!