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Chris S. Jacobsen: Is your business ready for the upturn?

It's the Law

Posted: February 25, 2010 7:58 p.m.
Updated: February 26, 2010 4:55 a.m.
 
The sluggish economy has hit businesses across the board. While some businesses have started to see light at the end of the tunnel, others are still waiting for signs of encouragement.

As the economy starts to turn, have you staged your business for resurgence, expansion and its eventual sale? Your efforts to tidy up your business house in this slow time may reap significant benefits as the markets and the economy move forward.

Records and policies
Are your organizational documents (articles of organization or incorporation, partnership agreement, bylaws, etc.) organized and accessible?
Have you reviewed these documents lately to assure that they accurately reflect your current business and operations?

Are your minutes of meetings of the board of directors and shareholders up to date? Do you have an up-to-date employee handbook that sets forth your employment practices and policies, including (if applicable) the "at will" employment of your workers?

Spend some time reinforcing this legal framework for your business; it is the foundation upon which you operate.

Document interests
Have the interests of the owners of the business been properly documented? For corporations, stock certificates should be issued to each shareholder reflecting their interests in the business, and a stock ledger should provide evidence of the history of stock issuances and transfers and the outstanding shareholdings.

For limited-liability companies, the interests of the members should be set forth in a written operating agreement signed by all members.

For partnerships, the arrangements among the partners should be designated in a written partnership agreement signed by each partner. Further, if there are multiple owners of the business, they should have a buy-sell agreement in place that provides for the orderly transition of the business if one of more of the owners suffers a disability or death or otherwise desires to withdraw from the business.

Nothing can be more distracting to your focus on advancing your day-to-day operations than the uncertainty of a potential business transition.

Filing requirements
All corporations and limited-liability companies doing business in California are required to file periodic statements of information with the secretary of state.

Is your statement of information current? Filings are required annually from corporations and biennially from limited liability companies, with interim amendments required for any information changes between filings.

Failure to file statements on a timely basis may result in the imposition of monetary penalties and the suspension of the business' right to do business within the state.

For entities that are organized outside California, those entities are required first to register with the secretary of state in order to qualify to do business within the state.

Do you operate your business under an assumed name? If so, you must file a fictitious business name statement with the county clerk and renew that statement every five years.

Many cities outside Santa Clarita require that companies obtain and annually renew business licenses in order to do business within their boundaries. Have you checked the jurisdictions in which you are operating to assure that you have the required business licenses?

Stock, limited partnership interests and, with some exceptions, LLC membership interests issued or sold in California are securities and are required to be qualified with the state Department of Corporations unless an exemption is available.

For most small-business issuances, an exemption is available under section 25102(f) of the Corporations Code, but a Notice of Transaction filing is required to be made.

Keeping these filings current is not difficult and will steer your business clear of potential penalties and restrictions.

Review practices
Are your financial systems up to date? Have your current accounting and bookkeeping practices been reviewed with your accountant? Company funds and assets should be segregated from personal funds and assets - are the personal dealings of owners, managers and officers with the business carefully documented in your records?

When was the last time that you updated your business' standard forms of purchase orders and other agreements? Have the company's insurance coverages been reviewed with your insurance agent to assure that they are appropriate and adequate?

In particular, have you obtained employment practices liability insurance?

Slow times in business are not all bad. While your revenues may be down, you can still profit from this time. Take the opportunity to tune up your business and have it ready to perform in the resurgence of the economy.

Chris S. Jacobsen is a partner with Poole & Shaffery, LLP. He may be reached by e-mail at cjacobsen@pooleshaffery.com. His column reflects his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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