Legal Audit

Does Your Business Have Its Bases Covered?

Healthy businesses cover their bases by ensuring that legal fundamentals are addressed. Conducting a legal audit helps an owner protect and grow a business by identifying potential risks. More specifically, audits help business owners identify business practices that: reduce risk, clarify ownership issues, protect intellectual property, implement effective tax strategies, address risks for workplace liability, use well-drafted contracts and leases, prevent liability and litigation, observe laws and regulations, and operate properly on the internet.

Back to the SLG Legal Zone

- Step 1 of 6

Reduce Risk through Entity Formation

Separate personal and business assets and activities and maintain accurate governance documents to safeguard your business.

1. To protect the personal assets of owners, is the business a limited liability entity such as a Corporation, Limited Partnership or a Limited Liability Company?

Yes
To Do

2. If the business is operating as a corporation, did the business consult a CPA to determine whether the company should be taxed as an S Corporation or a C Corporation?

Yes
To Do

3. Does the business avoid the use of personal checking accounts for business expenses and signing business documents, contracts or correspondence in the owner’s personal name?

Yes
To Do

4. Does the business limit the personal guarantee of business loans?

Yes
To Do

5. Does the business protect its assets by separating the ownership of business assets and personal property?

Yes
To Do

6. Does the business maintain a minute book that includes important company records?

Yes
To Do

7. Does the business maintain business records (corporate/partnership agreement, bylaws, organizational and annual meeting minutes, and board resolutions)?

Yes
To Do

8. On an annual basis, has the business reviewed its operating/company agreement – if an LLC – or its shareholder agreement and bylaws – if a corporation – to ensure they accurately identify business owners, shareholders, corporate address, and the registered agent, and reflect current business structure and operations?

Yes
To Do

9. Does the business protect owners, directors and officers from liability?

Yes
To Do

10. Does the business authorize officers to carry out major business decisions by resolution or written consent in lieu of meetings?

Yes
To Do

11. If the business is a corporation, does the business hold annual shareholder and board of director meetings to protect the company’s corporate status?

Yes
To Do

12. Does the business document shareholder, board of director, and officer meetings via written minutes?

Yes
To Do

13. If the business offers, sells or issues securities (stocks, bonds, derivatives, options or other tradable financial asset), is it registered with the Securities and Exchange Commission and complying with disclosure and filing requirements, or is the offer, sale, or issuance exempt from registration under state or federal securities laws?

Yes
To Do

14. As the business grows, will additional limited liability entities be formed to further limit risk and protect business assets?

Yes
To Do

15. If additional limited liability entities have been formed, is business with these entities being conducted via arms-length relationships?

Yes
To Do

Clarify Ownership Issues

Legal issues can arise if it is unclear who owns a small business. To avoid this type of scenario and protect against ownership disputes, distinguish those who contribute capital from those who provide financing or business ideas. If you are a capital contributor, make sure you understand your ownership rights.

1. Does the business use an operating/company or shareholder agreement that clearly spells out ownership rights?

Yes
To Do

2. Does the business use an operating/company or shareholder agreement that clearly sets forth rights to vote or sell stock/dividends?

Yes
To Do

3. Does the business use written loan documents to prevent ownership claims?

Yes
To Do

Protect Intellectual Property

In the rush to start a business, many business owners use a business name or slogan only to later discover that another person or business entity may have the right to stop then from using the name or phrase because they have a common law ownership interest or have already registered it. Alternatively, small business owners may not act quickly enough to protect their business, goods, or service names when they learn that a third party is using it. Other business owners diminish the value of their business plans and trade secrets by not using the right agreements with employees, contractors and business partners.

1. Does the business have the sole right to its name, product or service names, and marketing slogans, that is evidenced by a state or federal trademark registration?

Yes
To Do

2. Are there any similar or confusing names that are used by an individual or entity other than by the business?

Yes
To Do

3. Does the business protect its business name, goods, or services as well as marketing slogans, against unauthorized use by others?

Yes
To Do

4. Have business marketing materials and customer deliverables been reviewed to identify materials that can be protected by copyright?

Yes
To Do

5. Does the business include appropriate trademark and copyrights notices on relevant materials?

Yes
To Do

6. Has the business reviewed innovative goods, manufacturing techniques, business packaging, and software to identify whether they can be protected by a patent?

Yes
To Do

7. When retaining third parties to assist with developing products, creative works, or website content, does the business use assignment or work for hire agreements to prevent ownership disputes?

Yes
To Do

8. Does the business protect trade secrets through the use of nondisclosure, confidentiality, non-compete and non-solicit agreements?

Yes
To Do

9. Has the business implemented procedures to protect trade secrets, such as by limiting access and using security measures?

Yes
To Do

10. Has the business implemented procedures to prevent the infringement of a third party’s intellectual property, such as securing written authorization or consent for content, images, or music and crediting the original creator of third-party content?

Yes
To Do

11. Does the business comply with licensing and consent to use agreements?

Yes
To Do

Implement Effective Tax Strategies

Implement effective tax strategies to avoid unexpected tax liability and retain an experienced professional to help keep up with tax laws and regulations.

1. Does the business use strategies to reduce unemployment taxes by separating wage compensation from owner distribution payments?

Yes
To Do

2. Does the business manage start-up expenses in a way that maximizes their tax value?

Yes
To Do

3. Is the business structured to avoid an audit risk?

Yes
To Do

4. Is the business structured to avoid (or, in some cases, take advantage of) double taxation?

Yes
To Do

Address Risks for Workplace Liability

A small business owner is most likely to face a lawsuit from a current or former employee; it is important, therefore, to take steps to avoid workplace liability.

1. Does the business collect appropriate information from employees to ensure their legal work status?

Yes
To Do

2. Does the business maintain required employee forms, such as W-2s, I-9s, etc.?

Yes
To Do

3. Does the business use an employment application that has been reviewed by an attorney or human resources professional to ensure it only includes legally permissible questions?

Yes
To Do

4. Do interviewers know what questions are legally permissible to ask prospective employees?

Yes
To Do

5. To protect the business and guide employees, does the business use an employment handbook with policies and procedures?

Yes
To Do

6. Has the business filed the required forms for unemployment, worker’s compensation and payroll withholding?

Yes
To Do

7. Has the business implemented policies to avoid discriminatory employment practices in hiring, discipling, promoting and firing people?

Yes
To Do

8. Has the business posted all required workplace notices?

Yes
To Do

9. Has the business implemented training programs for managers and supervisors to ensure compliance with laws such as the Americans with Disabilities Act, Title VII, worker’s compensation, unemployment benefits, and wage and hour requirements?

Yes
To Do

10. Does the business properly classify workers as either independent contractors or employees?

Yes
To Do

11. For properly classified employees, has the business evaluated whether they are correctly treated as exempt or nonexempt employees?

Yes
To Do

12. Does the business comply with state and federal laws regarding overtime compensation?

Yes
To Do

13. Do human resource personnel regularly document decisions made regarding employees to be able to support employee decisions if they are challenged on the basis of discrimination?

Yes
To Do

14. If the business uses employment agreements, do they protect its status as an at-will employer?

Yes
To Do

15. Does the business use well-drafted non-disclosure, noncompetition, non-solicitation, and confidentiality agreements to protect client lists, business practices, marketing practices, and other trade secrets?

Yes
To Do

Use Well-drafted Leases

Leases create long-term obligations, which can present challenges for small businesses faced with uncertainty about future growth and organizational change. It is important to think ahead before committing to a long-term lease.

1. Does the business use commercial leases that meet business needs according to the industry in which it operates?

Yes
To Do

2. Does the business use commercial leases that include clearly spelled out fees and rental obligations?

Yes
To Do

3. Does the business use commercial leases that include clearly spelled out renewal options, notice requirements, caps on tenant repair obligations, indemnification, insurance and waiver of subrogation clauses?

Yes
To Do

4. Does the business use commercial leases that include early termination provisions or right of first refusal options in case business circumstances change?

Yes
To Do

5. Does the business create calendar reminders to meet lease termination or renewal notice deadlines?

Yes
To Do

Use Well-drafted Contracts

A small business owner may ignore or skim contracts because they take too much time to read and negotiate. When small businesses sign contracts, especially with bigger companies, sometimes they fail to make sure they understand exactly what they are signing. Either of these practices is risky.

1. Does the business use carefully drafted contracts?

Yes
To Do

2. Does the business rely on standard form contracts for vendors, customers and independent contractors?

Yes
To Do

3. Does the business keep track of important contractual obligations and notice requirements?

Yes
To Do

4. Does the business use contract provisions that minimize personal and business liability exposure?

Yes
To Do

5. Does the business use contract provisions that waive warranties and protect it from liability for defective goods or unsatisfactory services?

Yes
To Do

6. Does the business use contract provisions that permit the business to fix a mistake or error, or respond to unexpected circumstances?

Yes
To Do

Prevent Liability and Litigation

When small businesses go to court, they typically lose. Even when they win a favorable judgment, the cost and time invested is a big loss for the small business. Take advantage of the many ways to reduce the risk of litigation.

1. Does the business use contract provisions that require parties to resolve disputes with cost-effective arbitration provisions?

Yes
To Do

2. Does the business use contract provisions that limit the other party’s right to sue the business and owners?

Yes
To Do

3. Does the business use contract provisions that limit damages?

Yes
To Do

4. Does the business use cost-effective and time-effective small claims court proceedings to resolve disputes?

Yes
To Do

Observe Laws and Regulations

Small businesses must abide by many laws, permits, licenses, and regulations. While it is tempting to ignore them, the better choice is to retain an experienced professional to help you keep up with these laws and regulations.

1. Does the business comply with laws and regulations?

Yes
To Do

2. Does the business use current and valid permits and licenses for all business operations and in all jurisdictions where it operates?

Yes
To Do

3. Does the business comply with applicable environmental and health code laws?

Yes
To Do

4. Does the business comply with local, state and federal taxes?

Yes
To Do

5. In the event of noncompliance with local, state or federal law, does the business comply with self-reporting requirements?

Yes
To Do

6. Does the business comply with state and federal law, as well as industry requirements, if it has a data breach?

Yes
To Do

7. Does the business meet record retention obligations under local, state or federal law?

Yes
To Do

8. In the event of a government investigation or litigation, does the business halt the destruction of physical and digital documents?

Yes
To Do

9. Does the business use marketing and advertising materials that are truthful and not deceptive?

Yes
To Do

10. Does the business comply with antitrust obligations when partnering with service providers or businesses?

Yes
To Do

11. As the business expands into new states or countries, does it properly register as a foreign entity and paying appropriate fees and taxes?

Yes
To Do

Operate Properly on the Internet

Most small businesses use the Internet and social media to sell or promote their goods or services. Laws for operating your business over the Internet or collecting information for marketing purposes frequently change. Make sure your business operations are up-to-date.

1. Is the content of the business website protected?

Yes
To Do

2. Is the use of third-party content by the business permitted?

Yes
To Do

3. Is the domain name of the business protected?

Yes
To Do

4. Does the business comply with privacy regulations?

Yes
To Do

5. Does the business comply with email marketing regulations?

Yes
To Do

6. If the business conducts sales of goods or services on its website, does the business comply with the Americans with Disability Act?

Yes
To Do

7. Does the business use website terms of use and privacy policies that are up to date, reflect actual business practices, and protect business interests?

Yes
To Do

Implement Sound Business Practices

Small business owners have many goals, but the primary goal is to remain in operation. Using sound business practices will help a business to meet this goal.

1. If a customer fails to timely pay for goods or services, does the business use agreements that permit the collection of late fees, interest, court cots, and attorney fees?

Yes
To Do

2. Does the business use legally compliant procedures to collect fees from delinquent customers?

Yes
To Do

3. During the past year, has the business reviewed its insurance policies to ensure sufficient coverage types and amounts, premiums are competitive, coverage is adequate, deductibles are optimized, and exclusions are appropriate?

Yes
To Do

4. In the event of the death, disability, bankruptcy, or divorce of a business owner, has the business adopted written practices?

Yes
To Do

5. If the business is owned by more than one individual, is a shareholder/buy-sell agreement or an operating/company agreement in place that (please see options below):

Yes
To Do

a. Is funded by insurance or another adequate method?
b. Prevents the conveyance of stock or ownership interest to a third party without first offering the stocks or ownership interest to existing owners?
c. Indicates what occurs upon the death, disability, bankruptcy or divorce of an owner?
d. Indicates what occurs upon the termination of employment of an owner?
e. Indicates what occurs if there is a business disagreement among owners?

In the near future, what are the primary challenges facing your business?

In the near future, what are the significant opportunities that the business would like to pursue?

Comment

Legal Audit

Reduce Risk through Entity Formation

Clarify Ownership Issues

Protect Intellectual Property

Implement Effective Tax Strategies

Address Risks for Workplace Liability

Use Well-drafted Leases

Use Well-drafted Contracts

Prevent Liability and Litigation

Observe Laws and Regulations

Operate Properly on the Internet

Implement Sound Business Practices

Contact Us

MENU

Reduce Risk through Entity Formation

Clarify Ownership Issues

Protect Intellectual Property

Implement Effective Tax Strategies

Address Risks for Workplace Liability

Use Well-drafted Leases

Use Well-drafted Contracts

Prevent Liability and Litigation

Observe Laws and Regulations

Operate Properly on the Internet

Implement Sound Business Practices

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