Most of us get a checkup from our doctor at least once a year, and many people visit a dentist twice a year. We generally accept that medical professionals use regular checkups to identify and diagnose non-symptomatic or underlying conditions that can be treated to prevent more serious health problems.
Like medical conditions, many legal problems can be avoided or minimized if they are identified and “treated” early. Unfortunately, many business owners do not meet with their attorney regularly. The attorney’s phone often rings after a threatening letter arrives from another attorney, a lawsuit is served, or some other legal issue manifests itself in an obvious manner. Do attorneys have the ability to resolve the problem at this point? Often, the answer is yes. Is it more expensive and stressful to reach a resolution now than it would have been if the problem was identified and addressed earlier? Often, the answer is yes.
A periodic review of business documents such as vendor contracts, leases, employment policies and files, corporate documents and loan related paperwork can help prevent future legal expenses. Here are a few examples:
- A Limited Liability Company (LLC) has several members. The members discussed preparing and executing an operating agreement at formation, but the LLC has been operating without one. A member signs a contract for the LLC without the other members’ knowledge. Another member is controlling the business’s finances and may have made unequal distributions. The members are all angry and no longer speaking with each other. An operating agreement would have clearly defined the members’ rights and obligations in this situation. Obtaining an approved operating agreement now is difficult and leads to a bigger dispute amongst the members.
- You make a loan to a business partner. Did you get a promissory note? Did you get collateral and properly secure it? Are all of the necessary documents executed, recorded, and/or filed to perfect and protect your interest in the collateral? Do you have copies of the required records? If not, you might not be first in line to get paid if there is a default on the loan.
- You own a corporation but have not held a corporate meeting or filed required annual reports. You are trying to close a loan for the company and the lender notifies you that your entity is not in good standing with the corporation commission. Your closing date is in jeopardy, which will create cash flow problems for the company.
- An employee complains about sexual harassment by another employee. Does your company have written anti-harassment policies acknowledged by all employees? Have all employee files been recently audited for completeness? If not, the defense of future claims by the employee may be more difficult.
Not every problem can be anticipated and prevented, but a regular legal checkup could minimize the risk and expense to your company. Sometimes, an ounce of prevention is worth a pound of cure, in your health and your business. FBN
Matt Mansfield is an attorney based in the Flagstaff office of Freeman Law PLLC. His practice is focused on civil litigation, general business law, and representing businesses in employment related matters.