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Is Your Business At Risk? Take a Short Risk Test to Find Out

Posted by Eric Parzianello on January 17, 2016

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How does a business owner minimize its risk of litigation or other costly disputes?  The first thing an owner must do is identify areas which are most likely to lead to conflict with either other owners, employees or customers.  While any of the following areas can lead to trouble, if a business owner’s answer is “no” to more than than a handful of these critical areas, unwanted issues could be lurking on the horizon.

1.  Does the Company have signed By-laws or an Operating Agreement?

Setting the “rules of the game” between owners is critical.  Even single member limited liability companies should have operating agreements to ensure it’s not considered a sole proprietorship in the event of litigation.

2.  Does the Company comply with corporate formalities such as documenting annual meetings?

Many companies’ governing documents provide for mandatory annual meetings or periodic valuations for buy-out purposes.  Failing to follow those provisions can lead to owner disputes.

3.  Does the Company have a succession plan in place?

Small business owners in particular often fail to have a plan in place in the event of their death or disability.  This can leave owners’ family members and the company itself in jeopardy. A Company’s succession plan should be part of the owners’ estate planning.

4.  Does the Company have an employee handbook?

A comprehensive employee handbook which covers all issues of the employees’ relationship with the Company is essential.  The lack of such a document with at-will provisions, social media policies and anti-discrimination and harassment policies can lead to litigation from a terminated employee.

 

5.  Are the Company’s key employees subject to non-compete agreements?

Both Michigan and Florida enforce well-drafted non-compete and non-solicit agreements.  Employees without such an agreement can turn your customers into theirs after they leave.

6.  Does the Company have confidentiality agreements to protect its sensitive information?

A Company must take measures to protect its confidential information.  Confidentiality agreements with those who have access to proprietary data are critical.

7.  Are the company’s customer relationships properly documented with contracts? 

Customer and client relationships are the lifeblood of any company.  Without proper contracts which include provisions for termination, default and dispute resolution, a Company can be at risk for litigation.

8.  Is any real estate owned by Company titled in the name of a separate entity?

If the business is operated from real estate which the Company owns, having a separate entity to hold that real estate can limit the risk to the business operations in the event of certain claims such as personal injury.

If the Company has multiple owners: 

9.  Does it have restrictions on an owner’s ability to sell ownership interests?

Although many small business interests are not marketable, an owner may wish to sell his interest to a spouse or key employee.  Without restrictions on such a sale, the other owner may end up with a business partner he doesn’t want.

10.  Does it have buy-sell agreements in the event of retirement or death of an owner?

Without proper buy-sell procedures, the retirement or death of an owner in a multi-owner business can lead to disputes between the owners or their beneficiaries.

Does your Company have some areas of risk?  Contact me to discuss how to reduce them.

Eric A. Parzianello
313-672-7300
eparzianello@hspplc.com

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