As 2017 draws to a close, it is time to start planning for 2018. As a small business owner, now is a good time to check the legal aspects of your business to ensure you in good standing. Here are a few items every small business should complete as part of your year-end legal checklist.
Incorporate Your Business
If you haven’t already incorporated your business, now is a good time to consider whether it is the logical next step for the growth of your business. The main advantage to incorporating is personal asset protection. Unlike the sole proprietorship, where the business owner assumes all of the liability of the company, in a properly structured corporation, an individual shareholder or member’s liability is limited to the amount he or she has invested in the company. If you are a sole proprietor, your personal assets can be seized to pay the debts of the business. In addition to asset protection, incorporating your business provides you with easier access to capital, opportunities to optimize your income through proper tax planning (saves you a good amount on taxes) and greater potential for tax deferral. In addition, an incorporated business has greater business name protections than a sole proprietorship.
Review your business contracts. If you own your own business, you likely have contracts with dozens of people and/or business entities – vendors, customers, partners, etc. Now is the time to review your building lease, your vendor contracts and your equipment leases. Have some of those relationships changed? If so, its important to revisit those contracts now and ensure the terms are still applicable to the current relationship. Make sure any agreed upon changes are in writing and signed by both parties! While often times these contracts will do nothing more than sit in a drawer for another year, you’ll be thankful you gave attention to them now should an issue arise in the future.
Record Keeping and Paperwork
Once you’ve taken the time to incorporate your business, it is important you regularly revisit your corporation’s organizational documents. For example, if you haven’t yet held your annual meeting this year, be sure and do so before the year ends. Did your business move this year? Did you change the name of your business? Change board members? If so, file Articles of Amendment with the state you are doing business in. Similarly, don’t forget to file your Statement of Information each year (biannually for California LLCs, unless you changed the business name, address or agent of service of process…in which case you need to also file it in the year those changes are made).
Assess Your Employees
End of the year is a great time to evaluate the performance of your workforce and consider giving bonuses. Also give attention to whether you’ve properly classified any of your employees as exempt from overtime wages. Have any of your employees’ job duties changes such that their employment classification might have as well? Careful consideration should be given to whether an individual properly qualifies as an independent contractor, or whether they should be an employee. Getting these classification wrong can have serious tax and legal consequences. Regardless of how you classify your workers, W-2’s and 1099’s should be issued for your employees and contractors by January 31st.
Now is also a good time to consider what new employment laws are applicable to your company and workforce. Review your employment policies and handbook every year to make sure they are still consistent with your current operations and practices.
Review Insurance Policies, Coverage and Rates
Talk to your insurance broker to review the insurance policies you have in place and confirm they are still adequate and appropriate for your business. Consider whether you’ve expanded into new business locations, added employees or developed new product lines. Are your policy limits consistent with contractual requirements you may have entered into over the past year? Make sure your insurance policies are consistent with those obligations to avoid being in breach.
Arrange a Meeting with Your Attorney, Bookkeeper, Accountant and/or Financial Advisor
Each of these individuals will have work to do for your business at year end. Working with them now will make it easier to close out your 2017 financials. Plus, the financial information and analysis they can provide will give you a great launch in making 2018 a success.
By giving attention to the above tasks now, you’ll be off to a great start to making 2018 a success!
Michael S. Fauver, Partner
DISCLAIMER: This Advisor is one of a series of business, real estate, employment, estate planning and tax bulletins prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution or use of this Advisor.