Year-End Legal Review

While year-end tax and financial planning has become relatively commonplace, few businesses give proper attention to a year-end legal review. However, a good review of the legal matters pertaining to your company can often prevent latter complications.

The following are common areas that should be reviewed. (See our Corporate Checklist for a more complete list.)

  • Ownership Matters — Business records should document changes in ownership, as well as any agreements entered into which provide for the future transfers of ownership. In addition, any annual re-evaluations of the company's worth required by buy-sell agreements or similar agreements should be documented in at least the minutes.
  • Minutes — Update shareholder and board of directors meetings to include your important business activities (reviewing our Corporate Checklist is helpful to determine what should be included).
  • Owner/Officer Transactions — Document dates and amounts of distributions made to owners during the year, as well as owner and officer compensation. Also, the terms and conditions of all loans to or from owners or officers should be documented with minutes and promissory notes.
  • Financing — Review all company borrowing and lending with third parties to assure that all documents are properly executed and in order and described in the minutes.
  • Leases — All leases entered into during the year should be disclosed in the minutes, including a summary of the names of the parties, date, lease term, a summary of rent and general description of the leased property.
  • Major Purchases — Substantial purchases of equipment, furniture and fixtures, etc., should be documented in the minutes by reference to the purchase agreement showing price, date, description and any loans to finance the purchase. Also review that all acquired property is adequately insured and is marked to clearly show company ownership.
  • Banking Activity — Business records and minutes should indicate the opening or closing of bank accounts and lines of credit, including the name of the financial institution, type of account and authorized signatures.
  • Employer/Employee Relations — Make sure that all employment agreements are in writing unless you intentionally want to keep them verbal. Have all employees who are on an at will arrangement sign a statement to that effect. Include in the minutes major changes in employment benefit packages and the dates and amounts of contributions to pension or profit-sharing plans.

In addition to reviewing current year activity, attention should also be given to the upcoming year. Planning should include a review of the following:

  • Contracts — All contractual arrangements, currently in force, should be reviewed to determine which ones will terminate during the upcoming year and which have extension or option provisions requiring notice to extend. Also, a careful review should disclose deadlines or conditions which must be met to avoid any breach of contract.
  • Employment Issues — Employee manuals and benefits should be reviewed and updated so that company policies are current and made known to all employees.
  • Ownership Issues — Review current ownership to determine if changes in the structure are needed. Consider whether the owners should have a buy-sell agreement, to assure that any departures are made smoothly.
  • Tax Planning — Tax professionals should be contacted prior to major business decisions so that the tax consequences of proposed transactions can be properly reviewed. In addition, both accounting and legal advisors should be kept abreast of any audits by taxing authorities. Finally, individual tax planning for business owners should be done to review the effect that proposed business transactions may have on individual taxes and estate planning.