How Up-to-Date Are Your Small Business’s Legal Documents?

by Taylor Sisk, Staples® Contributing Writer

So much paperwork for your small business. Is it all really necessary?

Unfortunately, most — if not all — of it is. Paperwork is the bane of so many business owners’ existence. But withstand it you must. Here is some advice to help you sort out how often and under what circumstances to update both internal and external small business legal documents.

Documenting Operations

According to Albert Overman, an attorney and a consultant for the Louisiana Small Business Development Center, who runs Overman Consulting in theNew Orleans area, one of the biggest mistakes proprietors make when first going into business is not drafting an operating agreement.

An operating agreement is a contract among those involved that stipulates how the business will be run. If you’re a single-member LLC (limited liability company), such a document may not be necessary. But if other parties are involved, it’s vital to have one. “Operating agreements are very flexible,” Overman says. “They tell you how we’re going to run this business, who’s going to do what, how we’re going to divide things up.”

Drafting an operating agreement and keeping it current can be critical for a variety of reasons, he says. For example, in community property states, half of all property acquired during a marriage generally belongs to the spouse. “Let’s say I’m in business with somebody and they get run over by a bus,” Overman says. “Now I’m in business with their spouse — I never meant to be in business with their spouse. But you can put provisions in that operating agreement so that in the event of death or divorce, the spouse will be taken care of in some other way, but will not participate in the business.”

The bottom line: “The operating agreement is very, very important for an LLC, and it’s very often overlooked,” he says. Whenever any circumstances covered by the operating agreement change, the document must be updated.

Corporate Affairs

For corporations, articles of incorporation and bylaws serve generally the same purpose as the operating agreement does for LLCs. Articles of incorporation don’t often change, or don’t change much, Overman says, but the bylaws do. When any particulars of the business change, those bylaws need to be amended.

But that’s not the only documentation corporations must stay on top of, says Emma Best, an assistant professor at the Charlotte School of Law in Charlotte, NC, and director of its Entrepreneurship Clinic, which offers free assistance to startups.

“With a C corporation or an S corporation, you have a lot of documentation that needs to be regularly updated,” she says. “Like board of directors’ minutes — anytime they meet, make decisions, elect officers — that requires updating on an ongoing basis.”

Your Customers and Employees

Customer- and employee-facing documents require varying levels of attention. Chris Matton serves as general counsel of Bandwidth, the telecommunications company behind Raleigh, NC–based Republic Wireless. He says that even though Republic introduces innovations on an ongoing basis, “our terms of service nonetheless do not require frequent changes.”

Matton suggests small business owners investigate and stay apprised of applicable federal and state laws. But “for most businesses in most industries, a peek at the terms of service every few years should suffice,” he says.

As for certain small business legal documents that relate to employees, Matton advises more diligence. “Employment law almost certainly changes more than any other area of the law. Particularly in regards to non-competition agreements,” he says.

The natural evolution of a business and its industry can easily render a noncompetition agreement irrelevant, Matton adds. “We make periodic changes to our agreements to track the evolution,” he says. “Even if your business or industry does not change radically, an annual review by an experienced employment attorney can help considerably.”

Nondisclosure agreements (NDAs), on the other hand, don’t change much over time. “In a pinch, an NDA from 20 years ago generally still would work,” Matton says. “Obviously, it wouldn’t directly address email and cloud storage, but the general principles and law simply haven’t changed materially. Put a well-thought-out NDA in place and don’t waste many legal dollars on updating it later.”

Operating Licenses

Depending on what type of business you’re in, you might also need to file and maintain specific operating licenses. That documentation would need to be updated if, say, you change locations.

A lease is another document that needs to be amended if any changes are made to the agreement, such as putting up additional signage, for example. Keep a copy of your lease on public record, Overman urges. And make the language as specific as possible because you never know when disagreements or misinterpretations may arise.

Staying Vigilant

Best stresses that keeping up with documentation requires particular vigilance when you’re just starting out. “The thing I find with new entrepreneurs is that they don’t quite yet really know what they want to be when they grow up,” she says. “That takes six months to a year, and in that time you could add a partner, or you could add somebody who needs access to a business account or needs to be in the operating agreement. So these documents need to be fluid initially. A lot of times, a startup business changes so much in the course of a year, it’s hard to keep up.”

Adds Overman: “Although most business people don’t think of them as such, you’re dealing with contracts every day. When you get telephone or Internet service, you sign a contract. You’re going to be dealing with purchase agreements, sales agreements, invoices — all sorts of agreements. Keeping on top of them is important.” Pay attention to deadlines on those agreements, and to changes in terms or rates, he says — these things add up.

The U.S. Small Business Administration Web site provides a lot of good information on legal matters, where to find resources, when you might need an attorney and more. Take advantage of what it and other free online services have to offer.

This article provides general information, and is not intended to provide personalized legal advice; please consult with your own attorney if you have any questions.

Taylor Sisk is a North Carolina–based journalist, video producer and documentary filmmaker. He is the founder of Past Forward, a business that assists with personal memoirs and organizational histories. He’s written and edited content for organizations, including the Social Science Research Council, the Drug Policy Alliance and the National Undersea Research Program. 

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