Spring is a fun and exciting time of year. Gone are the cold and short days of winter, exchanged for warmer weather, blooming vegetation, increased sunlight, and my personal favorite, New York Met baseball. Spring also serves as a reminder to declutter, refresh, and restart in many ways, such as the longstanding tradition of spring cleaning. One aspect that often gets left out of the traditional spring-cleaning checklist is an evaluation and refresh of business matters. Here is a quick list of items you and your company may want to review before we enter the dog days of summer:
Capital Accounts and Ownership Interests
It is very important to keep an accurate record of the capital accounts and current ownership interests of all business partners. Without proper ad timely documentation memorializing a change in the capital contributions and/or ownership ratios, a dispute can arise as to the amount, purpose, or treatment of financial transactions between partners. For example, one partner may believe that they received a loan from their partner, to be paid back over time, while the other partner believed they purchased a portion of their partner’s interest in the company. Clear and timely documentation can eliminate ambiguity and ensure mutual understanding between business partners.
Roles and Responsibilities
It can be important for both minority and majority interest holders to explicitly enumerate each other’s roles, responsibilities, and expectations in the company’s governing documents. A clear understanding of the expectations for each party’s duties can lead to a more efficient and productive business relationship. This can be a good opportunity to discuss problem areas in the company’s operations and allocate responsibility to one or more people.
Meetings and Actions
Spring can be a perfect time to hold a formal company meeting to discuss future plans, goals, and objections, while also reflecting, evaluating, and/or ratifying past actions. Many companies meet informally regularly, but some decisions and actions can get lost or forgotten without formal documentation. Properly memorializing company actions at a formal meeting can substantially reduce the risk of disputes arising in the future.
Buyout/Transfer Provisions
One of the most important provisions in a company’s governing documents are those discussing how a partner may transfer their interests, as well as the valuation method that will be utilized. If you are considering a new business, this is an area that we encourage you to consider carefully. It is also important to review these provisions in existing governing documents to ensure the procedures still reflect the partners’ desires and interests.
We enjoy assisting businesses of all entity types and sizes in all matters, from initial formation to final dissolution, and everything in between. Whether you want to set up a new venture, hold a formal company meeting, refresh outdated governing documents, or discuss more specific business needs, we are happy to assist.
By: Gunner Joyce, Attorney
