Most business owners have enough to keep them busy dealing with the day-to-day demands of marketing, operations and keeping customers, suppliers, employees and other contacts happy. Unless a specific problem arises, or a particular regulation requires immediate attention, there is little time to review legal issues that may affect the business, now or in the future. Nevertheless, it is important to set aside time for periodic “legal audits” to identify areas or issues that may develop into problems if left unattended and to ensure long term planning objectives are established and attained.
A legal audit need not be expensive, nor time consuming. An audit begins with a review of basic company documents such as articles of incorporation, bylaws, shareholder and director minutes and resolutions, and the stock register and transfer records. Operating documents such as leases, major contracts, permits and licenses, employment or consulting agreements and the like, can then be addressed, followed by a review of hiring and firing policies, environmental and other regulatory compliance matters, and income, sales and employment tax return filing and payment issues.
The procedure for an audit is simple. It generally starts with a compilation of materials pursuant to a checklist, similar to those used in corporate due diligence reviews, which would include, but may not be limited to, the following items, in addition to those already mentioned:
• Loan documents with bank and non-bank lenders
• Joint venture and partnership agreements
• Purchase and supply agreements, including all terms of sale
• Insurance contracts and plans
• Reports made to government agencies
• Detail of any inquiries made by any local, state or federal agencies including, but not limited to, OSHA, EPA and EEOC
• Description of current or potential litigation
• Current sales brochures, marketing and warranty materials
• List of management personnel and compensation, option, incentive or bonus plans
• Profit sharing, 401K or other retirement or welfare benefit plans and filings
• Confidentiality, non-compete and non-disclosure agreements for protection of proprietary properties and trade secrets
• Trademark, patent, copyright and other registrations for intellectual properties
• Titles and title documentation for company-owned property and equipment
• Website text and graphics
A legal audit should be conducted periodically, and at least annually, to ensure the company is kept on track and potential problems are nipped in the bud. Company management, accountants and other advisors should be available and should participate as part of a team to safeguard the company, its business and assets. Our firm has performed numerous legal audits. We would be pleased to coordinate an audit with you and your team of advisors.