Julian M.lzbiky
Attorney at Law
7400 East Caley Avenue, Suite 300 Englewood,
Colorado 80111
303-850-7080
©1995, 2000 Julian M. Izbiky

I. Corporate/Limited Liability Company Issues

1. Have you organized your business as either a corporation or a limited liability company to protect your personal assets from your business's creditors? If not, should you?
2. If you are operating as a corporation, did you initially determine whether you should be an S corporation or a C corporation? If you incorporated more than one year ago, have you annually reassessed whether you should be an S corporation or a C corporation?
3. If you are incorporated, do you do the following in order to protect your corporate status?

A. Hold shareholder and board of director meetings at least annually and prepare minutes of these meetings;

B. File corporate reports with the Secretary of State;

C. Keep your corporate: and personal bank accounts separate; and

D. Sign corporate documents in a corporate capacity?

4. If your business is owned by more than one individual, do you have a shareholder (buy-sell) agreement or a limited liability company operating agreement which addresses the following points:

A. That shares of your company's stock or an interest in your limited liability company cannot be conveyed to a third party without first offering the other existing owner(s) the opportunity to acquire the shares or the limited liability company interest;

B. What will occur upon the death of an owner;

C. What will occur upon the disability of an owner;

D. What will occur upon the bankruptcy or divorce of an owner;

E. What will occur upon the termination of employment of an owner; and

F. What will occur if there is disagreement among the owners.

5. If you have a buy-sell agreement, is it funded by insurance? If so, are the premiums current, and is the amount of insurance appropriate for the size and profitability of your business?

II. Sales Documents

1. Do you ever extend credit in the sale of your products or services? If so, do you require that your customers/clients sign a contract or credit application which includes the following provisions:

A. If payments are not made on time, interest will accrue on the unpaid balance at a specified rate of interest (often 18% or 24% per year);

B. If you take your customer/client to court or arbitration and win, you will be entitled to recover your attorney's fees and court costs from your customer/client;

C. If you sue your customer/client, you may do so in the courts of the county in which you have your office;

D. Any disputes which arise with your customer/client will be submitted to mediation and/or binding arbitration;

E. Appropriate limitation of liability provisions limiting your company's liability to your customer/client;

F. Appropriate waiver of warranty provisions waiving certain warranties which may otherwise exist; and

G. A personal guarantee by the individual owner(s) of your customer/client.

III. Collecting Accounts Receivable

1. Do you send out invoices for your goods and/or services promptly after you have delivered your goods and/or provided your services, and do you send out follow-up invoices regularly (for example, monthly)?
2. Do you regularly follow up unpaid invoices with demand letters and telephone calls?
3. If your follow-up demand letters and telephone calls have not prompted payment of a delinquent invoice, do you refer the matter to a lawyer or a collection agency?
4. Are you knowledgeable about small claims court, county court, district court, mediation, and arbitration?

IV. Employee Matters

1. Do you comply with the applicable requirements regarding classifying individuals as employees or independent contractors?
2. Do you comply with the requirements of federal and state laws which prohibit discrimination on the basis of race, religion, national origin, age, sex (including prohibiting sexual harassment), pregnancy, and disability?
3. Do you understand how to prevent wrongful termination lawsuits?
4. Are the questions that you ask job applicants in your employment application and in interviews legally permissible under applicable federal and state law?
5. Do you regularly document decisions made regarding employees in order to be able to support these decisions should they be challenged on the basis of discrimination?
6. Do you have an employee handbook, and, if so, has it been reviewed by an attorney to determine whether it is appropriate?
7. Do you comply with the applicable law concerning compensating employees for overtime?
8. Do you comply with the federal requirements regarding documenting the citizenship of your employees?
9. Do you comply with the requirements of the Family and Medical Leave Act?
10. Do you have your key employees sign employment agreements, legally enforceable non-competition agreements, and/or nonsolicitation agreements relating to the solicitation of your customers and/or employees?

V. Protecting Business Ideas

1. Do you have your employees and sub-contractors sign non-disclosure agreements relating to the non-disclosure of your confidential information?
2. Do you take steps to maintain the confidentiality of your trade secrets?
3. Have you obtained trademarks and/or service marks to protect the names and logos of your business and your products or services under applicable state and federal law?
4. Have you obtained copyrights to protect your important written materials and software?
5. Have you obtained patents to protect your inventions, business processes, and software?
6. Do you utilize work for hire agreements and other such agreements that state that any ideas and inventions developed by employees or independent contractors working for your company are the property of your company?

VI. Internet Issues

1. Have you determined whether your internet domain names infringe on another company's trademarks or service marks?
2. Have you obtained all applicable consents for content on your website?
3. Have you obtained all applicable consents for website links or framing?

VII. Leases

1. Are you planning to lease space? If so, have you hired a lawyer to review and negotiate the terms of your lease to make it more favorable for you? Common terms that can be negotiated: renewal options; rights of first refusal on adjacent space; and caps on tenant repair obligations
2. Have you reviewed your lease to determine whether you and your landlord are complying with it?
3. Does your lease have an option provision, and, if so, do you know the date by which you have to exercise this option or otherwise lose the right to do so?

VIII. Insolvency

1. Are you aware of which debts you are personally liable for, so that you can try to pay these debts off prior to paying off debts for which you are not personally liable?
2. If you are in financial trouble, have you determined what rights you would have under the bankruptcy statutes, and have you consulted a lawyer regarding pre-bankruptcy planning?

IX. Obtaining Financing

1. Are you planning to obtain financing? If so, have you hired a lawyer to review and negotiate the terms of your loan documents to make them more favorable for you?
2. Have you reviewed your loan documents to determine whether you and your lender are complying with them?

NOTE: The Small Business Legal Audit is a tool to help small businesses evaluate their legal health. It is intended to cover certain issues that are common to many small businesses. It is not intended to - and in fact no short audit can - address all legal issues which may be relevant to a particular business.

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