Established Businesses have Legal Needs that are Often Neglected Until a Dispute Arises.
You and your business “partners” have been operating your business for a while now. The stress of the business launch phase is over and now the stress of keeping up with client needs, hiring and retaining talent and endless administrative tasks has set in. As hard as it is to make time to take stock of the legal needs of your business when you are busy keeping things moving, this is a critical time for a review. We very often see businesses that took off, had the best intentions of doing things “right” and then the day to day took over and they never got around to an employee handbook, employment agreements, customer terms and conditions, disclaimers, an operating agreement, and a succession plan. It is not possible to anticipate all these legal concerns in a single article, and it is important that you schedule a check-in or a series of check-ins with your legal counsel.
Here are some of the topics that you and your attorney should review if it has been a while since you had a legal wellness check:
You Formed Your Entity, but did you Follow Through on the Formalities and Signed Agreements.
- Formation/Partnership –
- Was your business properly formed in the state in which you are operating? Did you pick the right type of entity (e.g., sole proprietorship, partnership, corporation, limited liability company) and has anything about your operation changed which may cause you to want to transition to a different type of entity? Have your business operations expanded into a new state and have you filed for permission to do business in that state?
- Are your corporate minutes up to date?
- What kind of written agreement do you have with the other owners of the business? Partnership Agreement? Operating Agreement? Shareholders Agreement? No written understanding at all? Having no written agreement, or a poorly written agreement, are recipes for fighting, misunderstandings, and expensive legal disputes. Even if you and the other owners get along great and have no misunderstandings, lenders and other third parties may want to see that the owners have a written agreement.
- What is your ownership succession plan? Are your shares/ownership restricted? Do the other owners have a right to purchase your shares upon your exit (voluntary or otherwise)? Do the other owners have an obligation to purchase your shares upon your exit (voluntary or otherwise)? In the event of an unexpected death or disability, would your heirs receive your shares/ownership or just the value of your shares/ownership? Do you have key employees who you would like to incentivize by offering them shares.
- If one of the owners developed a chemical dependency issue or a material dispute over management of the business arose, how would this be addressed as between the owners? What would you do if a third party approached your business with an offer to purchase? What if one owner wants to sell and the other owner or owners do not?
You have Even One Employee, Make Sure that Your Business is Complying with All Labor, Employment, Wage and Other Legal Obligations.
- Employment Issues – How many employees do you have? Are some of them independent contractors? Are you sure that the taxing and regulating authorities see those individuals that way? Make sure that you are complying with all laws that apply to your employment situation. https://www.dol.gov/general/aboutdol/majorlaws
- Do you have employment agreements with your key employees? Are those employees at-will or employed for a term? Do you have a restrictive covenant included in the employment agreement?
- Do you have an employee handbook? When was that handbook updated? Employment laws change and are updated all the time. Employee handbooks need to be reviewed for compliance at periodic intervals and after certain critical changes in the employment landscape.
- How many total employees do you have? Do you know which employment laws apply to your business? Have you been advised regarding Minimum Wage and Overtime obligations? https://labor.illinois.gov/employees.html
- Are all employees in the same state? Are some working remotely from a different state? Which state’s minimum wage and overtime laws apply to that employee? Do you have salaried employees or, per task, fee-based pay structures? Have you confirmed that those employees are meeting minimum wage thresholds and/or are they exempt? Are you implementing a timeclock system that will demonstrate whether any non-exempt employees worked more than 40 hours per week? If so, are those employees being compensated for their time over 40 hours?
- Have you had an attorney advise you regarding the criteria for determining who qualifies as an independent contractor? Receiving payment via a 1099 is not the determining factor. Has someone reviewed your independent contractor agreements?
Make Sure that You have Clearly Communicated your Business Terms to Your Clients. Keeping them Happy is Essential.
- Many businesses only think about the wording of their invoices, terms and conditions, disclaimers, specifications, and other important legal tools after they are embroiled in a dispute with a customer. Ideally before you accept that first engagement or order from your first customer, your business would have a written document that explains what good or service is being sold, at what price, to be delivered when/how and when the customer must tender payment. You should clearly express to your customers what you are delivering (example: a fantastic customer experience) and what you are not delivering (example: no miracle cures).
- The customer should know whether sales are final or whether there is any return option, restocking charge, exchange policy, warranty, limitations on liability, etc…
- As your customer base grows, your terms and conditions, sales contract or equivalent, should express which state’s law applies to the transaction and designate the location (venue) for any disputes. If you happen to sell goods to customers located in California, make sure that you are aware of consumer protection laws that apply to such transactions.
- Do you have a website? Is it ADA compliant? https://www.ada.gov/resources/web-guidance/
Many business owners get so busy working through the day-to-day aspects of running their business, that they forget to cross the legal tasks off their to do list. Very often, those owners come to us when a problem arises, and they realize that the problem might have been avoided or at least minimized. This post is a starting point for a deeper conversation and evaluation by your attorney. Reach out for an appointment to get the process started. This blog may bring a lot to mind, but for business owners, the more you know, the more you can be prepared to run your business successfully for the long term with peace of mind.
If you have questions about the content of this blog or employment law needs, contact Navigant Law Group, LLC at (847) 253-8800 or email us at email@example.com.
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