by Jon Austin
Just as we often spend time at the end of the year contemplating both the year behind us and the one before us, setting goals, reviewing accomplishments and so forth, the end of the year is also a good time to review similar items for any business. With that in mind, we offer the following non-exhaustive list of some items you may want to consider in your end-of-the-year business review.
Limit Your Litigation Exposure. One of the effects of a bad economy is increased litigation. Studies have shown a majority of companies report being involved in ongoing litigation during the economic downturn, with contract obligations and employment issues topping the list. Although avoiding litigation may be impossible, you can control certain aspects.
- Keep company assets separate. Business and personal assets and records should be kept separate and distinct. A company’s limited liability protection is easily lost by commingling personal and business assets.
- Make sure contracts are in the company name. It is important that the proper person or entity (business vs. individual) be identified as the party to the contract. And, when you sign documents, be sure to identify your representative capacity when signing in behalf of a business (e.g., president, manager, etc.). Otherwise, others can seek to impose personal liability upon you for obligations of the business.
- Implement and update a document retention policy. A policy governing the retention and destruction of old company documents is a good business practice. The policy needs to be prospective, objective, and rigorously followed to ensure documents are destroyed according to an established schedule and, otherwise, documents are retained according to the retention policy. If you become involved in litigation and your practice of destroying documents appears to be arbitrary and not according to a prescribed policy, courts will often presume the worst and may allow the other side to use it against you. Also remember, a company’s internal documents are not privileged – whatever you say, even in an e-mail or text message, could become public in a lawsuit.
Know Your Contracts. Do you know when your lease expires? Or when your biggest customer might start shopping for a lower price? Entering into a contract is only the first step to ensuring the intended benefits are realized. A good practice is to keep a summary of the significant obligations and liabilities in every major contract. It’s also good to keep a contract calendar with all key dates on one calendar to ensure you do not inadvertently breach a contract or lose a time-limited contractual right. The end of the year is a great time to review and update your contract calendar.
Keep Things Current. Current organizational records can mean the difference between business-level liability and personal liability. We recommend updating organizational records on an annual basis, so the end of the year is a perfect reminder to review the organization’s records for the year.
- In Oklahoma, limited liabilities companies must file an annual report with the Secretary of State and pay a $25 annual fee. Corporations must file an annual franchise tax return with the Oklahoma Tax Commission.
- Corporations, both for profit and non-profit, must also hold annual meetings in accordance with their bylaws, and minutes of the shareholder’s meeting and board of director’s meeting should be kept with the corporate record books. Although limited liability companies do not have the same requirement, we believe it is best practice for the owners to have similar documentation.
Non-profit corporations must generally follow the same requirements of any other corporation under Oklahoma law, including keeping board of director minutes with the corporate records. Most Oklahoma non-profits are also required to file and renew annually the Registration Statement of Charitable Organization with the Secretary of State.
Public charities must also file an annual information return (Form 990) with the IRS. The last several years have seen substantial changes to the Form 990, both in terms of which version is required (often depending on revenue and assets) and in terms of what information the organization must provide. The most significant change has been the transition of the Form 990 from a reporting form with mostly “fill in the box” type responses to an organizational governance form that relies on extensive narrative responses and seeks to move away from a one-size-fits-all approach. Certain governance practices and policies are now encouraged through their inclusion on the Form 990. Implementing new governance practices now should result in less scrutiny later by the IRS. Private foundations are still required to file Form 990-PF with the IRS, which is a modified version of Form 990 tailored for the distinctive characteristics associated with private foundations.
One best practice is for the organization to require officers and board members to annually review and agree to a conflict of interest policy. A good conflict of interest policy will consider, among other things, actual and perceived conflicts between the organization and its directors and employees, especially with respect to financial considerations such as salaries, contracts or purchases that benefit directors or employees, leases between the organization and a director or employee, and benefits provided to directors or employees who are related through family, marriage, or business interests.
We have had the privilege of helping establish and counsel many businesses and non-profit organizations. If you have questions about anything discussed here or if you would like our assistance with an annual review of your business practices, we would be pleased to help.