November 25, 2022
Naughty or Nice? The Corporate Cleanup Checklist.
By: Melissa Balocca, Esq.
“If you want to make an easy job seem mighty hard, just keep putting off doing it.”
— Olin Miller, American Businessman and Author
As a corporate attorney, my holiday wish every year is that business owners take time to review and perfect their corporate records, contracts, and procedures. Failing to clean up the internal aspects of a corporation can have serious legal and financial consequences. To keep my clients off the “naughty list” each year, I walk them through my “Corporate Cleanup Checklist," which I am providing here as a gift to you!
Corporate Integrity. Every business owner has a color-coded, chronological, and annually reviewed set of corporate records…right? Well, in case this doesn’t sound like you, let’s review the following now:
Corporate Books & Records. Your record book should be kept at your principal place of business and include articles of incorporation, bylaws, stock certificates, current ledger, and organizational actions. Annual meetings of the shareholders and directors are required by law (Cal. Corp. Code §600b). Ensure you have been holding your annual meetings of shareholders and directors and keeping the minutes or unanimous written consents.
Reports & Filings. To maintain its good standing with the state of California, corporations must file a Statement of Information within 90-days of registration and biennially thereafter. The corporation or its accountants should submit annual tax returns to the California Franchise Tax Board (C-Corp net income tax rate is currently 8.84%; S-Corp is 1.5%). Generally, both C and S-Corps are subject to the $800 minimum franchise tax. Failure to file may result in suspension or even dissolution of your corporation.
Specific Entities. Subchapter S Corporations should confirm that there are still under 100 shareholders and all are “eligible” to be shareholders of an S-Corp, that the corporation continues to have only one class of shares, and that no corporate actions have disqualified the Subchapter S status (e.g. differing distribution rights). Professional Corporations should ensure their certification is current under their applicable regulatory agency (e.g. law corporations must renew annually and submit a compliance report with the State Bar).
Buy-Sell Agreement. To ensure they remain consistent with shareholder objectives, the buy-sell agreement should be reviewed annually. Determine if the valuation formula or fixed share price is still applicable (often this is set annually), review any insurance that may be funding the agreement, and update based on life changes (e.g. marriage, retirement, disability). If no buy-sell agreement is in place, I’d strongly consider adding one.
Employees. Did you know that small businesses in California have a 46% chance of an employment charge being filed against them? The national average is 10%? If you have employees in California, you should complete the following annually:
Employment Manual. Ensure that corporate policy and employee manuals are up-to-date and in compliance with state and federal laws. At a minimum, the corporation should provide employees with written notice of ADA/FEHA process, meal and rest periods, at-will status, unlawful harassment, discrimination, and retaliation policy, and the right to modify. California law is constantly changing, so it is critical to review this annually. Just this year California has updated regulations on off-duty cannabis use, designated persons leave, abortion privacy, and minimum wage.
Company Policies. Consider adopting or modifying employee polices for personal electronic devices, social media use, personal email access, corporate resources usage, and confidentiality / non-disclosure to protect intellectual property.
Executive Agreements. Review copies of executive employment contracts, offer letters, severance agreements, independent contractor agreements, non-disclosure/ confidentiality agreements, and non-competes.
Additional Matters. A few miscellaneous, but critical matters that should also be reviewed include:
Material Contracts. Review any shareholder agreements to ensure compliance with all covenants, representation and warranties, and delivery of required reports. Review material contracts for any required actions such as approaching expiration of negotiation period or required notices of renewal or termination.
Patents, CR, & TM. Keep a current list of all corporate intellectual property including patents, copyrights, and trademarks. Be sure to list the records owner, registration number, date of invention, first use, or authorship, issuance or publication dates, and any renewal dates and requirements.
Trade Secrets. Update list describing all material trade secrets and other proprietary know-how or processes owned by the company (take steps to keep this list confidential).
Domain Names. Finally, maintain a list of all domain names owned by the corporation including registrar and renewal date.
Licenses & Permits. Renew any expiring licenses, permits, or certifications, as well as any existing fictitious business names (also known as DBA), as needed.
Privacy & Data Security. Are you aware of the California Consumer Privacy Act and the requirement to provide information on consumers’ privacy rights? Are your privacy and data security policies current? Be sure to review or develop a procedure for the use and disclosure of customer or personal information. Are your procedures in line with data protection and privacy legislation? It may be time to have legal counsel review your current policies to ensure compliance.
This “Corporate Cleanup Checklist” is not exhaustive. There are several additional matters that business owners should review including financial documents, sales and marketing plans, material contracts with vendors, contractors, and other third parties, and more. While the task may seem daunting, putting it off can results in serious legal and financial consequences. If you or your clients need consistent and competent legal counsel to guide you through the corporate clean-up process, please contact Balocca Law and be “Secure in the Knowledge.”
Questions or comments? Contact Melissa Balocca, melissa@baloccalaw.com.
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