What do you worry about? Many worries can be put to rest if you know your business works on top of a strong foundation. The ‘rug won’t be pulled out from under you’ if your foundation is strong.
When a business owner worries that their business wasn’t set up properly (the foundation of the business), and they want to make sure they are complying with all the regulations regarding businesses, a legal audit is what they need.
What is a legal audit? At The Legal Department, we conduct legal audits on corporations and LLCs to make sure they were set up correctly and they’ve been governed correctly over time. We view a corporation or an LLC as a “container” and if the container isn’t solid, problems can leak out or seep in.
While we’ve conducted legal audits on many different kinds of businesses, for many different reasons, here are some mini-case studies on some legal audits we’ve done for our clients over the years.
Government Contractor. Our client is a highly trained consultant for the military and works on many different government projects. When she first started, she had formed the LLC herself by filing on Sunbiz and getting an EIN. After talking to her accountant, she realized she probably didn’t do things correctly. She came to us chagrined because she wasn’t practicing what she preached, which was to “do things the right way from the beginning so you avoid unnecessary problems”. After conducting a legal audit, we noticed some missed steps and filled in the gaps for her. We explained the structure and how to manage the LLC going forward and she was relieved to feel that things were organized and in place.
Construction/Installation. Our client was a twenty-plus-year-old business that was owned and operated by two brothers. Their accountant had originally set up their corporation back in the day, but no one had made any updates or changes along the way. They came to us for a legal audit because they were preparing to transfer some of the ownership to each of their children as a succession plan. They realized that they couldn’t pass “a mess” so they wanted us to clean things up. After conducting a legal audit, we updated their documents and were able to help them structure the business better so that adding more owners would be efficient and easy to manage.
Marketing Agency. Our client was going through the process to become certified as “woman-owned” and she realized that her corporation did not have many of the documents required for certification. She called us asking if we could help her create these documents and we discovered that her corporation wasn’t fully formed! After conducting a legal audit, we finished the formation process for her and created all the missing documents. This made it much easier for her to submit the certification application now that everything was complete!
Real Estate Brokerage. Our client is a busy real estate brokerage, moving at warp speed in today’s market! They were growing rapidly and trying to keep their feet underneath them. In an attempt to put some security around their whirlwind of a business, they were looking at all the places where they were worried about liability. As part of their clean-up process, they asked us to do an audit of their corporation. And we’re glad we did! There were some gaping holes we needed to fill, so we created the necessary documents and fixed others. After putting it all together and going over it with them, they breathed a huge sigh of relief. We like being able to give that kind of security!
Design/Build Firm. Our client had been in business for 17 years when he decided it was time to sell. He had a buyer lined up and had already made several steps down the path before he came to us. In the selling process, he realized that his corporation wasn’t in the best of shape. In order to get the most protection in the sale process, he wanted the corporation to be air-tight. After looking over all his documentation (which was not much!) we created the documents he needed to establish the authority of the corporation to make the sale. Then we helped him with the sale.
Financial Advising/Management Firm. Our client wanted to retire. He had been a financial adviser for over thirty years and had built an amazing book of business. He had already made an arrangement to sell his financial advising business to another advisor, but there were other pieces of his business that were all mixed in his corporation. Due to his licensing and regulatory compliance, this made the sale messy. After conducting an audit of the corporation and filling in some missing pieces, we were able to separate some commercial property and other business assets from the financial business so that it could be sold. Ultimately, the new structure involved multiple entities, and the licenses for the financial business were protected. The sale went through and he’s enjoying his retirement!
Law Firm. No, it’s not weird that other lawyers hire us to advise them on business issues. Our law firm clients practice everything but business law and they have their own expertise. For this client, they wanted to be able to allow other lawyers in the firm to participate in management without becoming full owners of the firm. We conducted an audit of their LLC and ended up converting it to a professional association (a type of corporation only allowed for certain licensed professionals – you sometimes see this as “PA” after the name). In the process of structuring the new PA, we created some layers of management that allowed them to accomplish their goals of growing in a way that fits them best.
Health/Medicine Coaching. Coaching businesses are full of intellectual property – after all, they’re teaching information. Our client needed help moving his business to Florida(it’s called “domestication”) and in the process, we discovered some issues. Intellectual Property is a funny thing. It’s created by humans but often is owned by the business entity. When the business entity isn’t stable or set up correctly, this can jeopardize the ownership of the IP. After conducting his audit, we were able to not only move his existing business to Florida but to shore it up so that all the IP he had created over many years was vested in a stable corporation that would last.
Transportation Company. This client was fun to keep up with! He moves at a speed even the USS Enterprise couldn’t match. He understood the value of liability protection (after all, he’s in a high liability industry) and had set up multiple corporations to cover his business in different parts of the US. But with speed came a lack of follow-through on some details. I think we can all relate to that sometimes. He came to us for help with a business deal, and in the process, we discovered some problems. Some of his corporations weren’t updated, so we got to work updating the corporations so that his deal could go through. And now we sprint to keep his corporations updated with all the new deals he’s doing!
Software Development Company. This client has developed software that allows local governments to perform certain tasks in an automated way. Many years ago, when they were selling to their first localities, they had to establish their credibility and fill out lengthy government applications. Security clearances and data management are serious concerns for governments. Those applications required corporate documents showing ownership and authority, which they didn’t have. They had filed on Sunbiz and had an EIN. That’s it. After doing an audit and filling in the missing pieces, they were able to pass the application and clearance processes. Now, they operate in multiple states and continue to expand every year. It helps to build on a strong foundation!
It’s always helpful and sometimes inspiring to hear stories about other small business owners. We can and should learn from each other’s experiences. If you can relate to one of our clients, or you have your own story and would like to talk to us about a legal audit, we’d be happy to help.
Information in this journal post is for general informational purposes only. Nothing in this journal post should be taken as legal advice for your individual situation. Viewing of this journal post and/or contacting us does not create an attorney-client relationship. Please do not send confidential information to us until an attorney-client relationship has been established.
