Key Issues to Consider in the Operation of Your Business
The legal housekeeping that protects your company between deals.
Business is often conducted at breakneck speed. Along the way, even owners with the best intentions overlook, or don't have time to address, legal matters that can strengthen the operation of their companies and provide important protections. The issues below touch on partners, contracts, intellectual property, and more. Addressing them in advance can shield your business in litigious times and enhance the value of your company.
Manage your partners.
Whether your business is a corporation, a limited liability company, or a partnership, if it has more than one owner, make sure your fellow shareholders, members, or partners are aligned on management and on any decision about a major transaction. You cannot guarantee agreement, but you can manage the relationship with a buy-sell agreement, shareholders' agreement, or operating agreement. These agreements impose restrictions on transferring ownership interests and set decision-making mechanics, including: (1) rights of first refusal in favor of the company or the other owners; (2) repurchase rights upon certain events, such as the death, disability, divorce, or bankruptcy of an owner, or misconduct; (3) drag-along rights, letting you require your partners to sell their interests when you sell yours; and (4) tag-along rights, letting you sell your interests when your partners sell theirs.
Document your relationships.
Depending on your industry, some of your relationships with suppliers, customers, or contractors may not be documented. Document them to the extent practical. Doing so preserves the value in your company and supports the due diligence review any investor will eventually undertake.
Protect your intellectual property.
Protect your company's patents, copyrights, trademarks, and trade secrets. The right actions depend on the IP that matters to your business: filing for a patent, registering a trademark or copyright, or limiting trade secrets to people with a need to know who have signed a nondisclosure agreement. Employees and contractors should sign invention assignment or work-for-hire agreements so the company is the sole owner of the IP. Monitor your IP and others' to make sure you are not infringing and not being infringed, and evaluate whether enforcement is the right next step when a conflict appears.
Maintain employee relations.
Employee lawsuits drain time, energy, and management attention. Make sure employees are paid properly, payroll deductions and withholding taxes are handled, and your employee handbook stays current on policies such as harassment, discrimination, leave, and disability, all of which involve complex and changing law.
Review your lease and environmental matters.
Continually evaluate your real estate needs. Your lease should be appropriate for the future needs of the business, assignable in a merger or sale, and acceptable on rent and term. Zoning and environmental laws may also apply to your business and deserve periodic review.
Protect your customers, digitally.
If you collect customer information, even on a third-party server, your business may be subject to state, federal, and international privacy regulations, including the California Consumer Privacy Act. California businesses must maintain reasonable security procedures and notify customers of a security breach. At a minimum, your website should have a privacy policy, terms of use, and a copyright/DMCA policy.
Implement a document retention and destruction policy.
A retention policy is an essential feature of a compliance program for companies of any size, and one that many statutes and regulations require. An effective policy provides a system for complying with retention laws, makes documents accessible, and routinely destroys documents that are duplicative or outdated. If litigation ever threatens, consult an attorney about preserving relevant documents. And enforce the policy: failure to follow your own policy can be used against you in a bad-faith document destruction claim.
Use your outside counsel as your in-house attorney.
Unless you need a full-time attorney on staff, partner with a good business lawyer who knows your business and is available for questions big and small. Your outside counsel can act as your in-house attorney, spotting issues and risks before they become large problems.
DISCLAIMER: This article is for informational purposes only and does not constitute legal advice. The information provided is based on current understanding as of the date of publication. Legal outcomes can change rapidly, and individual circumstances may vary. Please consult a qualified attorney for advice specific to your situation.