Before delving into the development of an ownership plan, every business owner must first know where he/she currently stands in the business lifecycle—and the processes and protections presently in place. First things first: Conduct a directed legal audit to nail down the state of the business’ foundation. From there, you can establish the base points from which to launch forward planning.
The legal audit focuses on the legal components of the business. It looks at how business relationships are documented, both internally and externally. The audit takes account of practices and protections already in place in order to spot — and fix — areas of potential risk, often overlooked or unknown. Generally, the legal audit should focus on eight areas of business relationships: corporate, property rights, intellectual property, tax, finance, operations, human resources and insurance.
The legal audit checklist generally includes certain documents to be inventoried and information to be compiled including:
- Corporate documents, e.g. articles of incorporation, bylaws, minutes, stock certificates
- Partnership agreements, shareholder agreement and/or operating agreements
- Detailing of all business assets, including intellectual property, review of trademarks, copyrights and patents and procedures for enforcement
- Commercial and retail leases
- Human resource and benefits matters, including retirement programs, employee handbook, employment applications
- Restrictive covenant and non-compete agreements
- Insurance coverage
- Contracts with third parties
- Loan agreements
- List of significant customers (representing in excess of 5% of annual sales)
- List of significant suppliers (representing in excess of 5%) , licensing and joint venture agreements, annual and interim financial statements
- Tax returns and well as documentation of audits.
When risks, current and potential, are identified well before they materialize into problems, it is relatively easy to strengthen procedures and apply other remedies that are quick, relatively inexpensive and 100% effective to significantly reducing or eliminating certain risk factors. If an owner is to exit one day when he wants…the way he wants…with the cash flow he wants, which is the goal of Ownership Planning, an initial legal audit is an important first step.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/20743/ownership-planning-the-legal-audit "