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Best practices for document creation and retention in new and existing businesses

Accountants often are the first professional a new business consults

New business owners are often leery of spending time and resources on “unnecessary” items

Some time and money on the front end can often save an enormous amount on the back end

Most Important Notion – Business owners must understand everything they are signing and entering into and why they need it

Organizational Documents - Why have a corporate entity? Limited liability protection for owners Configure ownership percentages for multiple owners Centralized management Continuity of business Transfer of ownership Need to raise capital Required by customer or vendor Tax benefits

Business Succession Agreements Many names: Buy-Sell Agreement; Member

Control Agreement; Voting Agreement; etc. No matter what they are called, all serve same

purpose – business prenuptial agreement Should ALWAYS be considered and drafted at

beginning of business relationship, not once someone wants out or wants someone out

Generally, review by accountant is warranted, so valuation method is understood by all before being needed.

Stipulation of value

Appraisal

Formula

Arbitration

Hybrid

Minutes Tax Information (FEIN, State ID #) Stock Documentation Securities Law Compliance

Documents Financial Information Annual Registration

Basics of a Contract Offer Acceptance Consideration

Contracts are not always made formally, may have offer, acceptance and consideration without ever thinking you are entering into a contract. Example – terms and conditions on website

where purchase is made.

More than one person entering into contracts, be sure all are on same page.

Consult with a professional before preparing form contracts or agreeing to terms.

Set appropriate limits for terms of contracts – establish company policy.

Retain copies of all fully signed agreements.

Ask for time to have agreements reviewed and for explanations to changes.

Promissory Notes Important to remind business owners that notes be

treated like cash – don’t lose them and don’t make more than one original.

Need documentation if owners is lending money to business to avoid disputes among other owners later as to status of funds (loan, capital contribution, something else?)

If owner takes loan from business, also important to document, for many reasons (tax status and treatment, avoid owner disputes, know where the money is going, etc.)

Guaranties Owner(s) personally liable Important to think about financial position

of each party – if one owner is judgment proof and other has a lot of personal assets, guaranty of one may not mean as much as guaranty of other.

When owner leaves business – need to know what guaranties exist in order to extinguish them.

Security Interests and UCC Filings Usually encountered with bank financing, lessors, and

others selling large amounts of goods on credit. Business owners (or their professionals) should

always know what outstanding UCC financing statements exist for the company. Will come up when company is seeking financing or

additional investors, or is exploring a sale of some or all assets or ownership of the company.

Good practice for business owners to know when financing statements should be terminated, and be sure this is taken care of.

Financial Reports Good practice to go over these with

business owners and be sure they understand what the numbers are telling them, so you don’t hear “I thought you were taking care of that” once it’s too late to fix.

Federal, state, FICA, FUTA, withholding and sales tax Sales tax issues for online businesses. Sales tax issues for businesses with sales representatives or

agents in other states and municipalities. Sales tax nexus is often much easier to establish than income

tax nexus. Business Expenses Wage Statements

Employee vs. independent contractor status. Clients should establish (with your help) how the individual

should be classified, paid, and what taxes should be withheld. Another “I thought you were taking care of it” area.

Deeds and Certificates of Title

Insurance Policies

Business Plans

Agency and Environmental Information