Annual Legal Audit: A New Year and New Resolutions for Your Business
By: Attorney Amanda N. Follett, Schloemer Law Firm, S.C.
The new year is here, and everyone has taxes and a gym membership on their mind, but what about their business? Every year, corporations are required to have an annual meeting. Even if your business is not a corporation, you should still hold an annual meeting. All businesses can benefit from an internal review by reviewing potential areas of liability and areas where your business can proactively plan for the future.
Why do I need to hold an annual meeting?
For corporations, the annual meetings are a requirement of the Wisconsin Statutes and a corporation’s By-Laws.
Annual meetings provide an opportunity to formalize by resolution both past and future actions of the corporation. Proper business organization and documentation will minimize operational risk and shareholder liability, for any type of entity, corporation or otherwise.
What happens if my business does not hold an annual meeting?
Not only is holding an Annual Meeting for your business an important part of proactive planning, but failure to hold an Annual Meeting can have harsh consequences for your business. If there is not an Annual Meeting and Annual Meeting Minutes done every year, there is the risk that:
- A plaintiff suing the corporation could potentially “pierce the corporate veil” and an owner could become personally liable for the company’s obligations.
- The corporation could lose funding from investors if they find out that the corporation is not complying with the requirements of law.
- There will be disputes that could be avoided if there is a clear written record of past actions of the corporation.
- The IRS may not recognize your corporation taxwise if the corporation is administratively dissolved due to lack of meeting the necessary filing requirements.
What should be discussed at an annual meeting?
So we’ve established that an annual meeting is essential for a business’ success and avoidance of liability. The next question we often receive is: what should be covered?
Below is a general outline of items which should be considered at the meetings. You can use this as a guide for preparing your own minutes:
- Review financial operations including:
- Financial Performance – Review and approve financial statements
- Confirm Company Accountant
- Confirm Banking Relationship
- Personal Guaranty/Personal Asset Collateral
- Accounts Receivable Aging/Collection Matters
- Dividend Approval
- Bonus Approval
- Approval of Borrowings/Credit Facility Financial Institution
- Supplier/Customer Credit requirements
- Capital Expenditures
- Compliance matters including:
- Tax Compliance – Confirm that all returns are filed, taxes paid or properly accrued
- Tax Audits
- Environmental Matters
- Real Estate – As Owner or as Operator
- Liability Protection
- Division of Entity (i.e. LLC and Corporation)
- Lease Provisions
- Environmental Reports
- Operational Safeguards
- Training/Safety Program
- Proper Disposal
- Proper Storage
- Safety Programs
- Internal Controls
- Good Standing with the Wisconsin Department of Financial Institutions
- Business Governance Matters, including:
- Election of Directors
- Election of Officers
- Establish Wage for Owners
- Establish/Confirm Bonus Program
- Non-Shareholder Employee Matters, including:
- Employee Retention
- Employee Recruitment
- Fringe Benefit Review/Changes/Communication regarding same
- Employee Handbook
- Employment Contracts – Advantages & Disadvantages
- Confidentiality Agreements
- Covenants Not to Compete
- Key Employee considerations
- Review Current Benefits
- Consider Additional Benefits
- Consider Fringe Benefits
- Consider Employee Training and Development
- Qualified Plans & Non Qualified Plans
- Litigation matters, including:
- Any pending litigation?
- Any threatened litigation?
- Risk control including:
- Insurance Review:
- Is current insurance adequate (limits, exclusions, coverage)?
- Is an umbrella in place?
- Safety Program
- Organizational Structure
- Contract review including:
- Insurance Review:
- What contracts are in place?
- When was the last time they were reviewed?
- When does their term expire?
- Do purchase orders or delivery receipts contain inconsistent terms? (This could raise issues with “Battle of the Forms” under the Uniform Commercial Code.)
- What contracts should be in place?
- Liability exposure – insurance adequate?
- Option to renew
- Option to purchase
- Strategic plan – 3 year perspective
- What contracts are in place?
- Business competition
- Employee attraction and retention
- Review internal governance documents, including:
- Shareholder Agreement
- Decision Making
- Buy/Sell Agreement
- Spouse – Divorce/Death
- Payment Terms
- Covenant Not to Compete
- Value of business
- Estate plan in place and up to date
- Personal Objectives
- Business succession
- Power of Attorney for finances in case of incapacity
- Health Care Power of Attorney in case of incapacity
- Business Crisis Manual
- Who? What? Why? How? When?
- Who Does What?
- Who Can Be Trusted?
- When Does It Get Done?
- Why Do We Do This?
- When Is It Done?
- How is it Done?
- Business trends
- Confidential Information
- Backup Off Premises
- Stay current to stay ahead of the Competition
- Industry/Market/Product Trends
- Health of the Owner
- Take care of your own physical and mental health and well-being
- Delegate – Hire good people and trust them
Items discussed and approved at the Annual Meeting should be reduced to a written record. The written record should provide sufficient detail regarding who was in attendance and matters discussed and approved (including the election of officers and directors, approval of financials, and other important matters).
You should consult with trusted advisors before and after your Annual Meeting. If you would like help with preparing for an Annual Meeting or preparing the Annual Meeting Minutes, the attorneys at Schloemer Law Firm are experienced in helping business of all sizes in these matters. Proactive planning is the best way to protect your business from costly and stressful setbacks, and to help your business grow and be profitable.
More Important Reading
- Building an Effective Succession Plan
- Limiting Your Liability – Avoiding Piercing the Corporate Veil
- Does Your Business Have an Emergency Plan?
Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected]