Have you organized your business records lately?
June 12th, 2023
You’ve completed your spring cleaning at home, but have you decluttered your business records? If not, we’ve made it easy for you. Let’s take a page from Marie Kondo's book and tidy up your business records using the following checklist:
- Charter, Bylaws (Operating Agreement) – Are they in the Minute Book?
- Is the Company keeping minutes of shareholder/member and director meetings?
- Is the Company filing annual reports with the State of Tennessee?
- Has the Company received consideration for each share of stock/membership interest issued?
- Are they qualified in all foreign jurisdictions in which they do business?
ALTER EGO/PIERCING THE CORPORATE VEIL
- Are they commingling funds? Diverting company assets for personal use?
- Are they failing to maintain minutes and records of ownership, transfer?
- Are they diverting company assets to the detriment of creditors?
- Are they failing to maintain arm’s length relationships between related entities?
- Are they treating multiple entities as 1?
- What are the Company’s financial obligations to lenders? Do they have the documentation readily available?
- Is management aware of the representations and warranties as well as the scope of any restrictive covenants? Are they any issues? What are the consequences of a breach?
- Are all assets of the Company pledged as collateral? Are there duplicate pledges? If so, is there a subordination agreement? (i.e., is everything transparent to the Lenders?)
- Do they own or lease real property? Any restrictive covenants or lease obligations that we should be concerned about?
- Are there restrictions on encumbrances that need to be reviewed to ensure conformity?
- Do they maintain the required insurance and are providing certificates of insurance in a timely manner?
- Have trademark registrations been obtained for company products and services?
- Is the “TM” or “SM” notice displayed on all company literature?
- Have employees/contractors/consultants signed appropriate Confidential and Invention Assignment Agreements?
- Does the company infringe on the IP rights of others?
- Are all needed licenses obtained? Is the Company in compliance with the terms of the licenses?
- Does the Company have an at-will employment policy in place?
- Do interviewers of prospective employees know what they can and can’t ask?
- Is each employee required to fill out a comprehensive employment application?
- Is there a Non-Discrimination Policy in place? Sexual Harassment Policy?
- Are job offer letters carefully crafted?
- Does the Company maintain all the needed forms from employees (W-2, I-9 etc)?
- Is there a Social Media policy in effect? Email and Internet use policy?
- Do you need a BYOD policy?
- Management contracts? Do they exist? If so, are the terms clear? Is “cause” sufficiently described?
- Consulting Agreements? Do they have any unusual provisions or exclusivity obligations that could be problematic?
- Does every employee sign a proprietary rights agreement with a non-competition and non-disclosure agreement? Are those agreements narrowly tailored to fit your specific need?
OTHER MATERIAL AGREEMENTS (Key Client or Vendor)
- How critical is this vendor or client?
- What are the payment terms? Are bills paid in conformity?
- What constitutes default? What are the termination rights? How much notice is required?
- Does the Company have control provisions in place in to access key needs? e., ownership of dyes? escrow of mission critical software code? Disentanglement processes?
- Are they soft escalation provisions? I.e, within company executives and then mediation before arbitration or litigation?
- Are these contracts assignable in the event of a sale?
SUCCESSION AND EXIT STRATEGY PLANNING
- Is there a shareholder or buy-sell agreement? (may be in an operating agreement) if so, does it include a fair method of valuation?
- Is there a method of funding the buyout (I.e., insurance policy etc)?
- Do the principal owners have an estate plan (will, DPOA, etc) that allow for smooth transition of ownership or a reasonable method of liquidation, and permit business continuity?
- Does your company documentation permit someone the principal owner(s) trust to take over in the event of a death or disability?
- Has the succession plan been communicated to all appropriate stakeholders?
- Are there business loans that have been personally guaranteed by the stakeholders or loans that may be oversecured?