Annual Legal Checkup

By Gary D. Colby | January 11, 2011

In many U.S. states, automobile owners must have their vehicle inspected at least annually. In addition to improving public safety, an inspection can alert a car owner to developing maintenance problems, permitting the owner to address the issue without experiencing a breakdown or a more serious, expensive repair. An annual inspection (or other periodic review) of a company’s legal issues can likewise help a company nip potential legal problems in the bud and avoid more complicated and expensive legal problems.

For some companies, a normally slow business period offers an opportunity to schedule an audit of the company’s legal situation. Companies having less predictable activity cycles must instead reserve time to review legal issues.

Performing a periodic review enables a business to anticipate and plan future legal tasks, budget for associated costs or revenues, take advantage of otherwise unappreciated business opportunities and, sometimes, minimize or avoid legal disputes.

The components and comprehensiveness of a legal review should correspond to the types of legal issues and likely degree of involvement that a company anticipates facing. Issues commonly reviewed include a summary of legal disputes involving the business that arose since the previous review, including those that have been resolved and those that remain pending; planning for reasonably predictable disputes the company may face prior to the next review, especially including strategies for avoiding or more efficiently resolving them; contingency planning for unexpected, but foreseeable disputes in which the company may become involved; the appropriateness of the business’ current corporate structure and, especially for smaller businesses, a review of succession and estate planning issues that may accompany the departure of a principal.

More issues to think about during an annual legal review include examination of tax treatment of the business’ revenues and expenses, and strategizing to obtain the most beneficial tax treatment possible; consideration of anticipated or potential business transactions and development of strategies to maximize the associated business advantage; an update of recent changes in federal or state laws and regulations that affect the business or its operations; review and planning relating to legal liability of the business to its employees, customers, and others on account of the business’ operations and liability of suppliers and contractors to the business attributable to their operations; consideration of legal issues that are foreseeably raised by the company’s immediate and future business plans (especially those plans that represent a departure from the past); consideration of how the legal process may ease or advance aspects of the company’s business plans; review of compliance by the business and its customers, suppliers, and contractors with existing contracts; review of the manner in which the company secures and protects its intellectual properties, such as trademarks and service-marks, inventions, and confidential information; and reconsideration of the company’s personnel policies, including those relating to benefits, employee obligations, and changes to employment status.

Regarding this last item, a company’s periodic review with its counsel of employment-related issues can be particularly useful in connection with, or as a prelude to, a corresponding periodic review of those policies by the company with its employees. 

Of particular interest to biodiesel and other alternative energy companies recently are tax credits and other developmental incentives offered by the federal, state, and local governments. Availability, eligibility criteria, and other program details change frequently and can be difficult to follow for one whose job duties do not include remaining abreast of program changes. As individuals whose careers depend on current knowledge of such details, accountants and attorneys can be a valuable source of information regarding these programs. Attorneys active in the field can often provide insight into which activities and arrangements are more likely than others to draw the attention of regulatory and law enforcement officials, providing businesses the opportunity to avoid unnecessary scrutiny.

In short, a periodic review of legal issues—like an annual automobile inspection—can identify, and sometimes resolve or avoid, problems that might require far more complicated and expensive solutions if discovered later. Furthermore, regular meetings between a company and its counsel can improve counsel’s knowledge of the company’s operations, enabling counsel to better anticipate and respond to the company’s legal needs.

Author: Gary D. Colby
Attorney, Dilworth Paxson LLP
(215) 575-7075
[email protected]

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