Is It Time For A Legal Checkup?
Before starting out, you were smart to check into any legal issues that might apply to your new business (you may have even consulted a lawyer about specifics). Now that you’ve been up and running for a bit, is it time to take another look — to give your small business a legal checkup?
This could be especially important if your business is growing faster than expected or has changed in scope, including adding new markets, products, services or employees, since you started.
What’s a Legal Checkup?
Think of a legal checkup as an opportunity to identify areas that need updating and generally take stock of any legal aspects of your business that have changed since startup stage.
The goal of course is to make sure you’re staying legally compliant, but also that any legal protections you originally put in place continue to protect you.
“Diagnose mistakes and problems or just doublecheck the status of some of the things you set up when you started,” advises the U.S. Small Business Administration.
Where to begin? Use these 7 topic areas to begin a legal checkup of your small business:
Registrations & Licenses
Assess whether you’re up to date on things like trademark and name renewals, business licenses, permits and other certificates your business received from your state, city or county.
And if you don’t have one already, put a system in place that flags when things are due for renewals, etc.
Also, are there licenses or registrations related to new products and services, or a change in your business’ physical location? Look at any industry-related regulations that require filing — documents for staying legally compliant vary based on your type of business and location.
Marketing and Advertising
For example, are you staying compliant with the mail, internet and telephone order rule sometimes called the 30-day rule?
When you advertise products, the Federal Trade Commission says, you must have a reasonable basis for stating or implying that you can ship within a certain time, and if you make no shipment statement, you must have a “reasonable basis” for believing that you can ship within 30 days. If after taking the customer’s order, you learn that you cannot ship within the time you stated or within 30 days, you must seek the customer’s consent to the delayed shipment.
“Although you are not required to keep records, an accurate, up-to-date recordkeeping system can help show that you are complying with the Rule,” according to the FTC website. “This is especially important because, in any action to enforce the Rule, if you cannot document your use of systems and procedures for complying, the Rule provides that you bear the burden of proving you do comply.”
A legal checkup should include revisiting your company’s risk management – from cyber-security risks to potential physical hazards – to address any holes in your risk mitigation practices.
The idea is to assess for potential risks for legal problems before they arise to limit your company’s exposure to liabilities and lawsuits.
Structure and Operations
Review whether your legal structure is still a good fit. If you started your small business as a solopreneur and have hired employees or expanded services, you may want to consider forming an LLC or incorporating to obtain liability protection.
If you’re already structured as an LLC, it’s a good idea to review your operating agreement or shareholder agreement, or if you’re already incorporated make sure your bylaws accurately reflect your current business structure and operations.
Contractors & Vendors
This is also a good time to review the contracts and agreements you have in place with independent contractors or vendors.
Make sure you have written employment agreements in place with each vendor/independent worker, and that you’re legally classifying your workers properly, as independent contractors or employees.
Review your compliance with laws governing your business website, especially if you’re selling services and products online. For example, look at your Terms and Conditions, which should address limitation of liability, dispute resolution, and warranties.
“Effective terms and conditions need to set forth the rights and responsibilities of both the business and the customers,” writes attorney Michael Brennan on the website for his cloud-based law firm, The Virtual Attorney. “They should explain the effect of using the website and online store, obligations relating to payment, shipment, and satisfaction as well as what the customer can expect when he or she receives any products.”
If you have employees or plan to add a person, make sure you’re properly classifying their employee status as exempt or non-exempt, as it’s important to determine your obligations as far as paying overtime.
Also, be sure each has an employee agreement with expectations as well as other guidelines, such as a handbook if necessary, and consider a non-disclosure or confidentiality agreement to protect your business’ sensitive information, such as client lists and marketing strategies.
Beyond Your Legal Checkup
If you determine you need help, or discover problem areas, it may be time to go beyond your own assessment and check with a lawyer for a more in-depth look at where your business stands in terms of compliance and risk factors.