“Lawyers are seldom loved but often needed.” This famous quote is as true today as the day it was uttered. I often receive calls from clients about their businesses being sued. Usually, it is regarding a contract dispute. Or a state regulatory agency has fined them for not being registered, not following procedure, or facing a lawsuit from a former employee. The problem tends to be ten times more expensive than it would have been to prevent.
Here are the legal documents that every business needs to thrive.
Make Sure All Governing Documents Are in Place
First, as previously stressed, establishing your business properly in the beginning will cause less problems down the line. Whether you establish your business as a Limited Liability Company (LLC) or a Corporation, it is important to establish the governing documents of your business. If you have an LLC, this would be the operating agreement. This is a legal document that states how your business will be governed, who the owners of your business are and the different roles of each owner/member. It also states what would happen when an owner/member dies, how the business will be dissolved, and the process for selling the business or bringing on new business partners.
This is no small task. You need to pay careful attention to the terms of your operating agreement. Under the Ohio Limited Liability Company Act, if you leave out material terms, those terms will be filed by the Ohio statute. These terms may not be what you want for your business, therefore, it is essential to discuss all the terms of your operating agreement with your business attorney.
If you have a corporation, you will not have an operating agreement. Instead you will have bylaws. Bylaws are the governing documents of your corporation and operate similarly to the LLC’s operating agreement. Again, it is important to pay careful attention to what is in your corporate bylaws. Make sure you have a thorough discussion with your business attorney to ensure every aspect is covered and avoid deferring to Ohio law.
Always Complete Annual Minutes Without Exception!
Whether your business is organized as an LLC or a corporation, you must complete your annual minutes. Annual minutes are an official record and account of what was accomplished or discussed at any formal meeting with members of your LLC or board of directors of your corporation, as well as the actions taken at the meeting.
It is extremely important to complete your annual meeting minutes at least once a year. If you do not maintain your records, you are risking losing your liability protection. In a previous article, I discussed the concept of piercing the corporate veil. This is a legal concept where the individual members of an LLC or the shareholders of a corporation are held personally liable for acts or omissions. This can occur is by committing reckless, grossly negligent, or intentional conduct. One of the easiest ways to have yourself exposed to personal liability is by failing to follow corporate formalities, such as not recording your annual meeting minutes.
During discovery in nearly every commercial and business litigation case the opposing party will ask the business to produce their corporate records. If there are no records of annual meeting minutes, often, the legal action will be amended. The individual members of the LLC or shareholders and directors of the corporation will be named as parties to the legal action.
As mentioned above, this problem is more expensive to fix than avoiding the problem by having your corporate attorney prepare your annual meeting minutes once a year.
Basic Business Contracts
Finally, every business should have a core set of basic business contracts. First, you should have basic business contracts for your typical customer and vendor transactions. These are contracts that govern the terms of your most common transactions. This doesn’t mean, however, that you should use them in every transaction with a customer/client or vendor. You should always make a quick call to your business attorney to make sure that this contract will suit your needs.
Second, it is crucial to have basic employment contracts and basic independent contractor (or work-for-hire) agreements. If you plan on hiring any employees, it is always smart to have a basic set of documents to govern your employees and independent contractors. This is especially important if you are ever sued and the lines are blurred as to whether you have employees or independent contractors. These agreements would add protection to your proprietary information in your business such as valuable company secrets, customer lists, and anything else you wish to protect. This way, you can prevent an employee from taking the information and using it for their own personal gain. In addition, you may want to consider non-compete/non-disclosure agreements for your employees so if they later depart, they do not compete against you in the same marketplace for a period. However, in Ohio (and many other states), these agreements cannot be overly restrictive.
Lastly, always consider an employee handbook. An employee handbook and your employee records will always be your first line of defense in a wrongful termination lawsuit by a former employee. An employee handbook states all your policies and procedures about employees. It also goes over the policies about reprimands and termination. This can go a long way toward protecting you in the event of an employee lawsuit.
I hope you enjoyed reading this article and that this information is helpful in the management of your own business!
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If you have questions about legal issues affecting your own business, or you are looking to have a general counsel for your business, please contact our office for a conversation.
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