The Business Legal Checkup
Igor Ellyn and Orie Niedzviecki
Preventive advice for the legal health of your Business
This article explains a new legal service, Canadian Business Legal Checkup, an audit of legal matters affecting your business. Business Legal Checkup is a diagnostic tool most small and medium size businesses could use to verify if legal aspects of their operation comply with the law and to minimize risk, litigation and expense. When the Business Legal Checkup is completed, the business owner receives a lawyer’s report red-flagging matters which need correction, improvement or further legal advice.
A closer look at the Business Legal Checkup
Your business is built on a foundation of laws and legal procedures. As a prudent business owner, you have probably considered the following legal matters:
· Business Incorporation. The corporation has been properly set up. All shares are properly issued. Directors and officers have been appointed. The corporate minutes and register are up-to-date.
· Duties and Liabilities of Directors. All directors are protected from liability by sufficient insurance coverage.
· Shareholders’ Agreement. All partners are treated fairly. There is an orderly method for valuation and termination of the corporation. You understand the minority shareholders rights requirements of the Business Corporations Act.
· Business Registration and Renewal. You filed a business registration and have a system to renew it before expiry and you have registered any business names that you are using.
· Intellectual Property. You filed trademark, patent and copyright applications to protect the intellectual property of your business, including your website address.
· Website Audit. You have audited your website to check for breaches of privacy law, defamation and technology law issues. Your online sales portal is set up to avoid legal problems with privacy law, identity theft and contract issues.
· Licensing and Registration. If your salespeople have to be registered or licenced, you have a system to ensure that their registrations are up-to-date and that their regulatory requirements are being monitored.
· Commercial or Industrial Lease. You had your lease vetted by a lawyer. You know what it says, including the extra rent the landlord can demand. You know the deadline for your right to renew.
· Legal Forms. Your use of legal standard forms and contracts in your business have all been vetted by a lawyer to comply with applicable laws including the PPSA, the Interest Act, the Consumer Protection Act, the Sale of Goods Act, the Mercantile Law Amendment Act and the Bills of Exchange Act and contract law.
· Credit. If you extend credit, you know that your service charges don’t exceed the "criminal rate of interest".
· Advertising. You know prohibitions against misleading advertising and unfair competition in the Competition Act.
· Privacy. You understand the privacy legislation and you have a system to ensure that you comply each time you collect, use, or disclose personal information.
· Employee Agreements. Your employees have signed agreements which spell out the length of notice they are entitled to receive if you terminate their employment. You know who is entitled to how much and what to do if you decide to terminate an employee, whatever the reason. You understand your obligations under the Employment Standards Act.
· Non-Competition Agreements. Your employees have all signed non-competition covenants and non-solicitation agreements to prevent them from taking away your best clients, business procedures, best employees and trade secrets if they leave to set up shop on their own.
· Human Rights. You have a procedure to prevent violation of the Human Rights Code and you know the protected grounds of discrimination. You also understand all of the elements of sexual harassment and you know how to deal with it.
· Workplace Safety. You know your company’s rights and obligations under the Workplace Safety Insurance Act and the Occupational Health and Safety Act.
· Insurance. You have liability and multi-peril insurance and you know what it covers.
· Product Liability. Your manufacturing and distribution processes are set up to avoid potentially devastating product liability and class action lawsuits.
· Taxes. You have complied with the filing requirements for income taxes, sales taxes and GST. You have had your business and municipal tax assessment vetted.
· Litigation. You know what precautions to take to help prevent litigation. If you are about to get involved in litigation, you have an action plan to maximize your chances of success and to keep the cost in check.
Small and medium-sized business owners don’t deal with many important legal issues involved in organizing their business relationships with partners, shareholders, customers, employees and government and in preventing or managing the risk of expensive litigation. Often, agreements are not fully thought through.
Small business owners tend to do only what they absolutely have to do to comply with the law and are reluctant to spend money for top drawer legal services when an inexpensive shortcut appears to do the trick. Your focus is getting your business up and running, getting your product to market, making sales and keeping costs down. You could be lucky and run your business for years without anything going wrong.
If you disregard preventive legal measures, your business is like a driver without a seatbelt in a car that has never been serviced ---in other words, a catastrophic accident waiting to happen.
How does a Business Legal Checkup work?
· You will be asked to complete some forms to provide confidential information about your business.
· You will have a discussion with the lawyer to assess the scope of the Business Legal Checkup. For example, it doesn’t cover tax law, environmental law or succession planning unless special arrangements are made.
· A basic Business Legal Checkup will provide a diagnostic review of the legal status of the following issues in your business: (1) Set up and governance of your corporation; (2) Relationships among the owners of the business; (3) Relationships with employees; (4) the contracts and forms used in the business; (5) Competition Law and Illegal Advertising; (6) Intellectual Property, Trade Secrets, Confidentiality and Privacy; (7) Safety and risk management; (8) Risk analysis and efficient management of existing litigation; (9) Internet Issues; (10) Regulatory licencing issues.
· A Business Legal Checkup can also be customized to meet the business owner’s specific requirements. This may require consultation with outside legal experts.
· In preparation for the Business Legal Checkup, you will be asked to provide documents and information concerning each category of the analysis.
· After the documents have been reviewed by a lawyer, consultation may be required with other lawyers. Further clarifications may be required from you and other senior officers of your business.
· A report will be prepared explaining the status of each topic and red-flagging issues which require attention and indicating their level of urgency.
· When the Business Legal Checkup report is ready, the business owner may prefer to have the Business Legal Checkup lawyer or legal team present the findings orally. An oral presentation followed by a Q&A session can assist the business owner to plan the next steps efficiently.
· The Business Legal Checkup legal team will facilitate referrals to lawyers who are specialized in resolving the legal problems identified by the Business Legal Checkup.
How much will a Business Legal Checkup cost?
For a small startup business with less than five employees, operating out of a single location and having only one business entity, a Business Legal Checkup can usually be completed for about $5,000 if there are no unusual problems.
Who needs a Business Legal Checkup?
Every business needs to know whether its legal processes are efficiently compliant with the law. Public corporations are obliged to provide certain levels of legal compliance to government and regulatory bodies. A small private corporation does not have the same levels of mandatory compliance but failure to do so voluntarily is like the proverbial ostrich with its head in the sand.
A Business Legal Checkup is also useful for a business owner who is considering the sale of his business or for a prospective purchaser of a business. Minority shareholders could insist on a Business Legal Checkup annually or bi-annually to ensure that management and the majority shareholders are meeting their obligations to the corporation.
A Business Legal Checkup may also be a credibility tool for a business seeking financing or government contracts. Unlike a financial audit, ISO9001 and ISO 14400 compliance standards, the Business Legal Checkup is a confidential report to management only and expressly excludes reliance by outside parties. If an outside party, such as a lender or investor, will receive a copy of the report, the Business Legal Checkup legal team must be informed in advance so that concerns relevant to these outside parties can be taken into account.
Where can my business get a Business Legal Checkup?
So far as we know, the Business Legal Checkup, as a fixed-price legal diagnostic tool for private small and medium-sized businesses is a new legal service in Canada. Interested business owners are invited to contact us for information.
This article appeared in the October 2008 issue of the Better Business Bureau Newsletter.
Igor Ellyn, QC, CS and Orie Niedzviecki are partners of ELLYN LAW LLP Business Litigation Lawyers, a Toronto law firm specializing in dispute resolution for small and medium businesses and their owners.
Igor Ellyn is a Specialist in Civil Litigation and a past president of the Ontario Bar Association. He has practiced as a business litigation lawyer for more than 30 years. He is a chartered arbitrator and mediator and the author of many legal articles, some of which may be downloaded from the firm’s website.
Orie Niedzviecki has practiced as a business litigation lawyer for more than 10 years. His practice includes commercial disputes, employment law, libel and slander, construction litigation and estate litigation. He is also admitted in the District of Columbia, USA.
Business Legal Checkup™ and Canadian Business Legal Checkup™ are registered trademarks.