Year-end tax and financial planning have become relatively commonplace. However, far too few businesses give proper attention to a fiscal or calendar year-end legal review.

A systematic and wide-ranging review of completed and prospective events concerning legal matters can prevent complications which can arise from the absence of such a review.

At the close of a business year, a review of the past year’s activity is advisable to ensure that transactions were properly carried out and documented in the business records and that those planned for the next business year are properly authorized. The following are common areas requiring a thorough review.

Ownership Matters
Business records should document changes in ownership, as well as any agreements entered which provide for the future transfers of ownership. In addition, any annual valuations of the company’s fair market value required by buy-sell/shareholder agreements or the like should be documented to ensure that such transactions are accomplished smoothly. Also, make sure that financial funding of proposed ownership changes is in place, such as life insurance policies. Foreseeable disputes among owners which may be disruptive to the operations of business, or worse, deadlock operations, should be immediately brought to the attention of the entity’s legal advisors.

Business Records
Business records should be updated to include memoranda or minutes of all meetings of the owners with voting rights and meetings of the Board of Directors, as well as evidence of proper notice for each meeting, if required. Annual elections of directors and officers should also be clearly reflected in the minutes. Review all minutes and resolutions to determine if any are missing. Review equity ownership records to ensure accuracy and ensure that all transfers were documented.

Make sure to ratify all actions of the entity that were not formerly authorized by resolution, including the following:

  • Contributions to qualified plans, such as profit sharing and 401(k) plans.
  • Borrowing resolutions (bank and shareholder/member).
  • Promissory notes for loans to or from owners and/or officers.
  • Auto leases and office leases.
  • Compensation and bonuses of owners or officers.

Review corporate filing requirements for each State where you do business to determine if any annual filing is required and when, as this may affect the qualification of the entity to do business or to file a lawsuit in that State.

Financing
All company borrowing and lending should be reviewed to ensure that related documents are properly executed and in order, especially shareholder/member/partner loans to the business. Business records should clearly indicate the financing terms, including amounts, dates, names of the parties, descriptions of any restrictions imposed by the financing and a listing of any collateral securing the financing.

Leases
All real and personal property leases entered into during the year should be fully disclosed in the business records, including the names of the parties, date of lease, length of lease term, amount of rent and description of leased property. All leases should be reviewed to determine if a renewal notice or a notice of exercise of purchase options (or notice of termination if the lease contains an automatic renewal provision) is required to be sent to a landlord and when.

Major Purchases
Substantial purchases of equipment, furniture and fixtures, computers, etc., should be properly documented by reference to the purchase price, date of purchase, description of property and purpose of purchase. Related contractual agreements (i.e., maintenance agreements, financing arrangements) should also be disclosed. Finally, verify that all acquired property is adequately covered by insurance and that company ownership is clearly documented.

Banking Activity
Business records should indicate the opening, extension or closing of bank accounts and lines of credit, including the name of the financial institution, opening or closing date, account number and authorized signatures.

Intellectual Property
Documentation should be reviewed regarding the company’s intellectual property to determine if it is properly protected. If the company owns any trademarks or copyrights, review these to determine if there are any renewal requirements. The company should also review the status of all of its assumed name filings (in some states also called trade names or fictitious names) to determine whether they need to be renewed. Domain names should also be reviewed to ensure that they are current, due to the fact that a lapse in registration of your company’s domain name could expose you to cybersquatters. A review of domain names could also include a search of domain names using any of your registered business names or tradenames to ensure that a competitor has not registered your business name as its own, resulting in online customers being directed away from your business.

Employer/Employee Relations
All employment agreements, pay plans and the like should be properly documented, including changes in employment benefit packages, and existing agreements should be reviewed to determine whether you have adequate protections in place regarding trade secrets, confidential customer information, non-competition and non-solicitation. Review records for purposes of determining proper amounts of contributions to pension or profit-sharing plans.

Employee manuals should be reviewed and updated so that company policies are current, in compliance with any changes in the law and made known to all employees. Personnel files should be reviewed to determine that all required forms have been completed, such as I-9, insurance forms, etc., and to verify that notes of reprimand or warnings have been documented properly. You should review and edit job descriptions and exempt status of your employees with legal counsel. Also, make sure that all required postings and workplace paperwork is in place. Additionally, you should review employment benefit packages to determine whether modifications are to be made and assess employer obligations under the packages.

In addition to reviewing current year activity, attention should also be focused on the upcoming year. Prospective planning should include a detailed review of the following:

Contracts
All contractual agreements currently in force should be reviewed to determine which agreements will terminate during the upcoming year, and which have extension or option provisions requiring action during the year. Also, a careful review should disclose deadlines or conditions which must be met to avoid any breach of contract.

Tax Planning
Tax professionals should be contacted prior to making major business decisions, so that the tax consequences of proposed transactions can be properly reviewed. In addition, both accounting and legal advisors should be kept abreast of any audits by taxing authorities. Finally, individual tax planning for business owners should be considered, including the effects that proposed business transactions may have on individual taxes and estate planning.

Legal Advice
Throughout the upcoming year, the company should strongly consider seeking legal and/or tax advice before engaging in any of the following:

  • Assessing and negotiating franchise agreements;
  • Creating or modifying standardized forms, such as purchase orders, that the company will use in the business;
  • Buying or selling a business;
  • Negotiating loan terms;
  • Negotiating leases of land or equipment;
  • Buying or selling real estate;
  • Negotiating agreements to license others to use patents, trademarks or other intellectual property rights that you own, or negotiating to obtain a license to use rights from someone else;
  • Negotiating other types of contracts;
  • Responding to a lawsuit that has been filed against the business;
  • Filing a lawsuit on behalf of the business;
  • Dealing with a government entity involving licensing or alleged violations of regulations;
  • Dealing with tax authorities;
  • Seeking new investors;
  • Opening offices or beginning to do business in other states;
  • Devising strategies for dealing with a business in financial trouble;
  • Making provisions to pass along your business interests to family members and minimizing taxes upon death.

If you need assistance in any of the above areas, please do not hesitate to contact a member of our Dealer Practice Group for guidance at 248-645-9300 or by email.