How to Keep your Business Flying High
By Jeffrey A. Robinson, Robinson
& Robinson, LLP
Before taking off, the pilot
carefully inspects the plane and its operating systems. Minutes
later, the pilot speeds along at cruising altitude, 10,000 feet
above the mountains and cities. The cockpit dashboard is covered
by lights, gauges, and instruments each designed to flash
a warning or indicate needed action. The pilot guides the plane
to its destination safely because all the gauges are functioning
properly, and the pilot analyzes the information provided and
follows their instructions.
If you were the pilot, and
the business was your plane, could you say the same? Do you check
your operating systems? Do you follow all the gauges, instructions,
and warnings? Do you even have the instruments in place to warn
of potential problems?
There are at least 10 basic
areas most business should assess regularly to determine whether
the legal aspects of their operations are functioning properly.
Correctly installed and periodically checked, these legal systems
will help your business stay at cruising altitude. Otherwise,
the business may crash the first time it encounters turbulence.
Business officers responsible
for legal affairs should be able to answer the following questions:
1. Is the business organized
to protect the owners against potential liability?
The legal form a business takes
will determine the level of risk the owners face. Usually, corporations
and limited liability companies protect against liability better
Whatever form a business takes,
the owners must make sure it is properly organized, with updated
records of stock issuance or ownership, and so forth. Formal corporate
records must be kept up to date to avoid the owners potential
liability to the companys creditors. These include documentation
of annual meetings, board meetings, resolutions, and election
of officers. In addition, state agencies require periodic filings
of corporate information.
Beyond formal organizational
records, the business should properly document any agreements
between the owners concerning the way the business will be run.
For a corporation, this could include shareholder agreements.
Owners may also want agreements covering possible problem areas,
i.e., buyout plans, succession or sale of an owners interest
to other parties. Old agreements may need updating.
2. Is the business properly
Another often-overlooked area
is licensing. A business should know what licenses are required,
keep them current and maintain adequate records. Licenses start
with the basics, such as a city business license. Beyond that,
particular personnel or owners may need state licensing: stockbrokers,
insurance salespeople and contractors, for example.
3. Is the business protected
against unwarranted customer claims?
Most commercial businesses should
have a written contract with customers establishing their respective
duties. If not, they are missing a significant opportunity to
control business risks.
Contracts should take advantage
of all available legal protections to shield the business from
liability. These include statutory limitations on liability, limitations
on warranties, indemnification, claims procedures, etc.
Many businesses have contracts,
but are in such a hurry to get the sale or so worried that
a signature requirement will kill the deal that transactions
are consummated but never properly documented. Unsigned contracts
are useless. So are contracts that arent filed. Once you
have the agreement, keep it so it can be accessed if disputes
Businesses must also be able
to document proper service to customers. In case of a challenge,
systems should be in place to document compliance with contract
requirements and with quality control procedures.
4. Is the business protected
from problems caused by its vendors?
Problems with vendors can hurt
a businesss customers. A commercial business should keep
written contracts with important vendors and periodically review
its vendor agreement forms.
Ideally, vendor forms should
hold the vendor responsible to the maximum extent possible, according
to the prevailing standard in the industry. The business should
ask for adequate guarantees, warranties and indemnifications.
Restrictions on lawsuits against the vendor should be minimized.
Consider third-party insurance.
Depending on the industry, the vendor may be asked to provide
insurance. If so, the business should keep a copy of the vendors
current certificate of insurance to reduce business risk.
5. Does the business comply
with all applicable governmental regulations?
Do any governmental agencies regulate
the business? Regulations can cover matters as varied as car pools
or transportation plans, air quality emissions and wastewater
discharges. The business should carefully document the steps it
takes to comply.
6. Are proper employment
Proper management of human resources
can raise complex issues, since there are so many state and federal
laws governing employment practices.
A properly updated employee
handbook can be a first step in avoiding liability. Use of written
employment agreements reviewed by an attorney can
also help reduce liability exposure.
The company should comply with
workplace laws, such as the Americans With Disabilities Act, OSHA,
and federal and state wage and hour laws. Many companies assume
they are in compliance without really checking.
The company should also assure
that it has proper procedures in place to guard against discrimination,
harassment, and other illegal actions by employees. Failure to
have these in place before a claim is filed can cause significant
Beyond these basics, the company
should also document employee hiring, discipline and firing decisions.
7. Is important business
information protected from misuse?
Most businesses have valuable
information. A company should assess that information to determine
how to protect it from loss, theft, or misuse. Patents, copyrights,
trademarks, trade secrets, confidential information all
can and should be protected.
A company with confidential
information should develop and use a nondisclosure agreement form.
These should be used with employees and other businesses (such
as vendors, customers, or strategic partners) that may have a
need for limited access to this information.
In addition, the company should
assure that confidential information is labeled as such. If the
business does not treat its own sensitive information confidentially,
it often cannot require others to do so.
8. Does the business properly
handle important state, federal and local tax matters?
Everyone knows about taxes, and
most people pay attention to them. Keep it up. The business should
assure itself that it is properly withholding and paying payroll
tax items, and keeping records to document all tax affairs.
9. Does the business have
a proper risk control procedures, including appropriate insurance?
Many businesses should pay more
attention to the level and nature of their liability policies
and other insurance. Each business should review its insurance
policies periodically to determine that there is coverage for
major risks and liabilities. A knowledgeable broker can streamline
10. Are there any outstanding
issues that the business has been putting off but knows it needs
Sometimes businesses know they
are at risk, but keep putting off a resolution. It is better to
be proactive and have a plan for resolving issues not already
Planning and preparation will
help your business fly higher and longer, avoid turbulence, and
arrive safely at your destination.
(Jeff Robinson is a partner in
the law firm Robinson &
Robinson, LLP. The Irvine-based law firm has a
"Legal Check List" that can help you plan. He helps businesses
avoid and resolve commercial liability problems both in and out
of court. He can be reached at (949) 752-7007 or firstname.lastname@example.org
This article is provided for general information only. It is not
an all-inclusive list of legal issues that may confront your business.
Consult your legal advisor on all legal issues. Robinson &
Robinson, LLP does not provide legal advice unless specifically
retained to do so.