Preventive Measures for Business Owners
Written by Gregory L. Ulrich, Esq.
Although the current economy shows inconsistent trends, reviewing basics of business practice remains important. Whether digging out from a losing product line or seeing significant up-ticks in revenue from new marketing opportunities, the focus over at least the next five years should be on prudent management of the legal side of a business. Organization, employment and risk management are ripe areas for attention.
Organization
The start of the new year brings endless ads for storage boxes, files, scanners and organizational software. With tax season in full swing, it is often a chore to dig through the personal information you may stuff away in glove boxes, desk drawers and countless envelopes full of receipts. In business, that accumulation of information has to be structured, and often is with expert tax and accounting advice. Yet sometimes the basic organization of a business is overlooked. This is especially true with small businesses that start up with a simple Limited Liability company format, known as the LLC, but fail to mature in how the structure should protect an investment. A corporate structure is costlier to maintain, but its governance and record keeping tends to be more formalized.
The easier establishment of an LLC, with articles of organization, must be followed up with an operating agreement and relatedlegal documents that provide for succession, key employee and staff responsibilities, and protections from potential liability or loss of valuable intellectual property. The growing number of tax sales, foreclosures and short sales have increased the use of real estate LLCs. They run the gamut from a single investor with one rental property to those who pick up properties on a regular basis. Insurance should be a concern that should be reviewed with an attorney and an insurance agent.
To Save or Not To Save
Business records flow in and out daily like wilderness rapids after a rainstorm. We tend to think that in the present age of technology, all that information can be easily tamed. However, that information can pose a trap for the unwary.
The paperless office does exist, but there is usually a “paperfull” place where all the emails are printed off, all the memos and reports are stored, and those work orders are squirreled away. “Paperlessness” is a goal that has the unintended consequence of making it more accessible when you least desire it— when you are in litigation. The inadvertent or stray note or paragraph in a human resources file comes to roost because it was scanned in with everything else.
Access to business information is part and parcel of commercial and corporate litigation. Electronic discovery related to the litigation is an accepted practice that judges take seriously. It often imposes great expense to search for and produce documents. “Documents” can mean anything written or electronically stored, including audio and video recordings. In the early days of computers, retrieving electronic information meant taking a hard drive to a forensic computer engineer to retrieve the information. Today, it may mean a subpoena to a cell phone carrier, or cloud computing site, or pulling voice mails from a phone system.
Electronic document storage is, however, extremely useful. Easy-to-use software that searches documents means you do not have to build elaborate file structures. Just choose a word, and the software runs through the documents and locates the items, whether you are searching for numbers or text. The method to managing this madness of information is a retention policy crafted with legal and records management guidance.
Employment is Where the Heart is?
Employees are dusting off handbooks, public sector employees are picking over union contracts, and staff are peppering HR departments with questions on health coverage, Family Medical Leave or the Americans with Disabilities Act. In the current economy with unemployment hovering at greater than 9%, people are focused on how they are employed and protected by law. Claims involving Fair Labor Standards or Wage and Hour issues, Americans with Disabilities Act compliance and Family Medical Leave disputes are on the rise.
Handbooks must keep up with changes in federal and state employment law. Departing employees will be looking for vacation and sick time payoffs, or worse, the wages they did not receive because comp time was used.
Ensuring that intellectual property (IP), the ideas and trade secrets of a business, is not headed out the door when a key employee finds a new job with better pay also requires legal guidance. Protecting IP requires an interplay between HR and recommendations from IP professionals.
Risky Business
Inadequate insurance coverage can be as bad as no insurance. A business must have coverage that matches its risks, type of work it does and property that it owns. More risk exposure arises from technology in ways few have previously imagined. Sometimes insurance is not a panacea.
For instance, cell phone use on a trip to a customer in a city that bans any cell use or distracted driving, calls for clear rules for employees. Remaining efficient and competitive merits discussion with an attorney, who can balance the issues and the protections needed to avoid liability.
You should also review the responsibility of key employees or partners, and obtain key employee insurance.
Even more risky is predicting the federal estate tax structure. The recent congressional free-for-all on taxation finally brought some certainty to estate planning, but only until 2012. The $5 million federal estate tax exemption is but fleeting solace, as small and medium business owners will be seen as a vulnerable group of federal deficit reducers. Multi-state businesses, and owners who might relocate must listen to legal and accounting advice when moving into a state that imposes its own inheritance taxes.
Increasing your business’s bottom line requires careful management of all facets of your business. An annual review of these practices can keep your company running like a well-oiled machine, regardless of the products or services you offer.
 
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