From time to time, clients with established businesses have asked me to bring order to their legal affairs. I refer to this as ” corporate housekeeping “.
Usually, the request results from an extraordinary, but desirable, event. This might be an acquisition offer, a prospective new investor, or a restructuring for tax purposes. In each instance, the client quickly realizes that it has not been paying close enough attention to legal documentation.
Although the clients are in different industries, their stories are similar. In essence, they limit their legal activities and expenditures to those required to bring business in the door, satisfy customers’ needs, and pay employees. This approach works on a day-to-day basis. Yet when the extraordinary event comes up, the company suddenly needs to devote scarce resources to legal clean-up.
Corporate Housekeeping Tasks
Here are some of the tasks that companies often neglect:
- Signing and filing certain corporate formation documents
- Issuing share certificates as required by the company’s bylaws
- Holding annual shareholder meetings in accordance with CA Corporations Code Section 600(b)
- Holding regular board of directors meetings
- Properly documenting shareholder loans to or from the company
- Ensuring that every employee signed a Proprietary Information and Invention Assignment Agreement
- Preparing financial reports as specified by the bylaws or a shareholder rights agreement
Unfortunately, this situation is not unusual. Early-stage companies are so focused on building the business that they put aside as many administrative tasks as possible.
So if you have a start-up, here is a recommendation: Keep up with legal requirements and formalities at all times. The cost to do so on an ongoing basis is far less than the cost and disruption of the fire drill that is required to make up for years of neglect further down the road.
- What Must We Do if We’re Going to Be Acquired?
- If You Think It Smells Bad Now, Wait until You Dig into It
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.