How Up-to-Date Are Your Small Businesss 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.
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 youre a single-member LLC (limited liability company), such a document may not be necessary. But if other parties are involved, its vital to have one. Operating agreements are very flexible, Overman says. They tell you how were going to run this business, whos going to do what, how were 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. Lets say Im in business with somebody and they get run over by a bus, Overman says. Now Im 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 its very often overlooked, he says. Whenever any circumstances covered by the operating agreement change, the document must be updated.
For corporations, articles of incorporation and bylaws serve generally the same purpose as the operating agreement does for LLCs. Articles of incorporation dont often change, or dont change much, Overman says, but the bylaws do. When any particulars of the business change, those bylaws need to be amended.
But thats 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, NCbased 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, dont change much over time. In a pinch, an NDA from 20 years ago generally still would work, Matton says. Obviously, it wouldnt directly address email and cloud storage, but the general principles and law simply havent changed materially. Put a well-thought-out NDA in place and dont waste many legal dollars on updating it later.
Depending on what type of business youre 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.
Best stresses that keeping up with documentation requires particular vigilance when youre just starting out. The thing I find with new entrepreneurs is that they dont 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, its hard to keep up.
Adds Overman: Although most business people dont think of them as such, youre dealing with contracts every day. When you get telephone or Internet service, you sign a contract. Youre 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 Carolinabased journalist, video producer and documentary filmmaker. He is the founder of Past Forward, a business that assists with personal memoirs and organizational histories. Hes written and edited content for organizations, including the Social Science Research Council, the Drug Policy Alliance and the National Undersea Research Program.