Opinion: An annual legal checklist for your business

Stephen F. Aton

The beginning of the year is an ideal time to give your business a legal checkup. Just as you would not ignore routine maintenance on valuable equipment, you should not assume that your legal house is automatically in order. A short, focused review can help you avoid disruptions, unnecessary expense and legal exposure later in the year.

The following checklist highlights several items every business owner should review annually.

1. Confirm the status of your business entity. Start by performing a business entity search on the Missouri Secretary of State’s website (sos.mo.gov/business). Confirm that your company is listed as “in good standing.” If it is not, you may need to take corrective steps to bring it back into compliance.

Corporations, both for-profit and nonprofit, can be administratively dissolved for failing to file required annual reports. While limited liability companies in Missouri have the advantage of not needing to file an annual report, corporations do not have that flexibility. Reinstating a dissolved entity is possible, but it is time-consuming and avoidable with proper calendaring.

Operating while not in good standing can create real problems, including difficulty entering contracts, buying or selling real estate or completing the sale of the business itself.

2. Verify the registered agent and address. On the same Secretary of State website, confirm who is listed as your registered agent and verify the accuracy of the address. The registered agent is the person or company designated to receive official notices from the state and service of legal papers if your business is sued.

If the information is outdated or incorrect, you may never receive notice that your company is about to be administratively dissolved. Worse, you could face a default judgment in a lawsuit if service of process is attempted but never reaches you. Fortunately, correcting this issue requires only a simple filing.

3. Annual report compliance. All Missouri corporations must file annual reports. Failure to do so will lead to administrative dissolution. As noted above, Missouri LLCs are exempt from this requirement, but business owners operating multiple entities should confirm which filings apply to which entities.

4. Update corporate minute books. Corporations are required to maintain minutes of annual shareholder and director meetings. Alternatively, shareholders may sign written consents in lieu of holding formal meetings. Either approach is acceptable, but the records must exist and be kept current.

Failure to observe corporate formalities such as maintaining proper minutes, can be cited as a factor in “piercing the corporate veil,” potentially exposing shareholders to personal liability.

5. Review stock certificates and ownership records. Some corporations retain physical stock certificates on behalf of shareholders. Reviewing these certificates periodically is good practice. You may wish to consider whether a transfer-on-death designation is appropriate or whether other estate-planning measures should be implemented to avoid probate.

Similarly, interests in a limited liability company can often be structured to pass to a designated beneficiary outside of probate, which can simplify matters for heirs.

6. Review your lease carefully. Confirm your lease termination date and any renewal options. An unexpected lease expiration can force a rushed relocation, disrupt operations and put you in a weak negotiating position.

Pay particular attention to deadlines for exercising renewal options. Many leases require written notice 60, 90 or even 180 days before the end of the term. Missing that deadline can leave you without any right to remain. Also review whether renewal rent is predetermined or subject to negotiation, and plan accordingly.

7. Review current contracts. Many service contracts renew automatically unless notice is given. These provisions often favor the service provider, not the customer. Review renewal and termination clauses and calendar notice deadlines so you are not locked into agreements you no longer want or need.

8. Confirm insurance coverage. Finally, review your liability insurance with your insurance agent. Confirm that coverage limits are adequate for your current operations and that you are complying with any contractual or statutory insurance requirements.

Time spent on an annual legal checklist is not an expense – it is an investment. A modest review now can prevent far more costly problems later.

Stephen F. Aton practices corporate law, real estate and estate planning, including wills, trusts and probate, and may be reached at Aton Law Firm, by email to steve@atonlaw.com.