Six Legal Issues to Consider for your Business Before the End of 2016
November 15, 2016 by Brown Fox
As we near the end of 2016, it is time to conduct the annual review of your business and to start preparing the company’s finances, contracts, and legal documents for year-end reporting and renewals. Below are a six relevant tactical items that you should consider and review before year-end to help ensure that your business begins 2017 in the best position for continued growth and success.
- Hold an Annual Meeting
Depending on the type of entity that you operate and the specific terms of your company’s governing documents, you may or may not be obligated to hold an annual, in-person meeting of the shareholders, directors, members, managers, or partners of your business. Regardless of any actual obligation, however, it is beneficial to hold some type of meeting (in person or remotely) involving all of the individuals who participate in the day-to-day governance of the company. Holding such a meeting at the end of each calendar year not only provides your company’s governing body with an opportunity to discuss concerns, air grievances, and share ideas, but also creates an opportunity for the company to approve and ratify any transactions and major business activities that occurred throughout the past year and to formalize such approval in writing, to the extent that these steps were previously overlooked. Ensuring that all such transactions and business activities are approved in writing can be important for the company’s retention of statutory and contractual limited liability protections.
- File the Annual Information Report
All states require that domestic and foreign business entities comply with a regular reporting obligation, and penalize those companies who do not take the steps necessary to so comply. Here in Texas, each domestic and foreign entity authorized to transact business in the State of Texas must file an annual Public Information Report or Ownership Report, depending on the type of entity being operated. Failure to file the appropriate report with each applicable state will result in the imposition of penalties against the company, which may include payment of a fine and/or loss of the company’s right to conduct business in that state. It is therefore important that you stay on top of your company’s annual reporting requirements and ensure that all reports are filed in a timely manner.
- Review and Update Ownership and Internal Governing Documents
It is likely that your company has undergone a number of internal changes over the past year. To ensure that your company’s internal governing documents are accurate for the 2017 calendar and fiscal year, your company’s governing documents should be updated to accurately memorialize any changes in ownership, any new or revised agreements between the owners, and any other changes to policies applied internally or to third party vendors. Additionally, if your company’s governing documents require any annual updates to the company’s valuation or employee vesting schedules, steps should be taken to complete the required task(s) and the company’s governing documents should be updated accordingly.
- Review Contracts and Relationships With Third Party Vendors
The end of the year is an ideal time to review all of the company’s outstanding contracts and current relationship with vendors, and to ensure that no modifications need to be made with respect thereto. For example, all outstanding contracts should be reviewed to determine whether their stated term expires in the upcoming calendar year, so that the company can determine whether or not to seek a renewal prior to each contract’s expiration. Further, to avoid any inadvertent contractual breach by the company, a comprehensive review of the company’s contracts with third party vendors may help ensure that all applicable representations and warranties of the company remain accurate. Likewise, to ward off any unexpected financial or other obligations over the next year, any outstanding real property lease agreements should be reviewed to determine whether the minimum rent, operating expenses, or other financial obligations are scheduled to increase in the upcoming year.
- Review Personnel Transactions, Employee Policies, and Benefit Programs
A full audit and review of all of the company’s employment agreements should be conducted to ensure that all desired employment agreements have been fully executed and that all confidentiality and non-competition agreements remain valid and enforceable. Further, if there have been or will be any significant changes in employment benefits offered to the company’s employees in 2017, approval of such changes should be reflected in the company’s minutes or resolutions and written notice thereof should be delivered to all employees.
This is also a good time to review the current classification of the company’s workforce, and the individual classification of individuals as either employees or independent contractors. Utilizing an incorrect classification can have serious tax and legal consequences for the business, so it is important that you work with both your attorney and your accountant to ensure that the company remains in full compliance with all applicable rules and regulations related to employee classifications.
- Review Insurance Policies
As your business operations grow and otherwise change from year to year, it is likely that your company’s insurance needs will likewise evolve. You should therefore take some time at the end of this year to reevaluate the coverages that you expect the company to need in the coming year, and to determine whether the company’s current insurance policies are sufficient with respect thereto. Even if the company’s insurance policies are not set to renew for a few months, conducting a review of any new insurance needs before year-end will ensure that you are prepared to speak with your insurance agent once renewal becomes imminent.
While the end of each calendar year is a busy time for everyone, especially business owners, taking some time in these last few months of 2016 to prepare for the new year can save your company both time and money in 2017. We are always available to answer any questions that you may have and to assist you in conducting the annual legal review of your business.