Closing the Books on 2023: Preparing Your Business for a Successful New Year
We are going to share some key areas to focus on when it comes to having your business’s legal affairs in order.
As the year draws to a close, it is appropriate and helpful to reflect on your business's successes and challenges (what did we do right? What did we do wrong?). If you haven’t already, now is a great time to establish a plan of action on how you’re going to make improvements both on and in your business.
Here at Munizzi Law Firm, we're dedicated to helping small and mid-sized companies thrive. So we are going to share some key areas to focus on when it comes to having your business’s legal affairs in order:
Review and Update Business Governance Documents
While reading your organization’s governing documents (i.e., shareholders’ agreements, bylaws, operating agreements, etc.) may not be your top pick for Christmas activities, it will be well worth your time. Give yourself the gift of additional clarity on your business, and you’ll be saying thank you for years to come.
- Bylaws, Operating Agreements, and Governing Documents: Depending on your business structure—whether you’re a corporation, limited liability company (LLC), or partnership—the names for these documents will differ. However, their general purpose is the same: to set forth the basic structure, or backbone, for your business’s governance. For example: an LLC’s operating agreement will establish important items such as ownership and management structures, accounting practices, restrictions on ownership and the transfer of equity, withdrawal and termination provisions, voting rights, dispute resolution, and the list goes on. If you currently have governing documents in place, take time now to review them and ensure that they reflect the reality as it is today, not what it was years ago. If you find that they need updating, you’re not sure what you’re reading, or you have no governing documents, just give us a call and we’ll be happy to offer solutions.
- Corporate Books: If your business is set up as a corporation, maintaining accurate and up-to-date corporate books is not only a good idea, but is legally required in Florida. And, your failure to do so may actually be defeating the main purpose of your corporation—being shielded from personal liability. When we say ‘corporate books’, what are we referring to? Your corporate books include annual and special meeting minutes for shareholders and directors (for every year that the corporation is in business), notices of meetings (if required), corporate resolutions (for any major actions taken by the corporation where a vote is required), stock certificates, stock powers, annual reports, tax elections, and financial records.
- Buy-Sell Agreement: Does your business have multiple equity holders (i.e., shareholders for corporations, or members for LLCs)? If so, then it is strongly advised to have situation-specific agreements between the company and these individuals outlining the four corners of the relationship, and dealing with the following scenarios (to name a few):
- Death: When an equity holder passes away, their ownership transfers to their designated beneficiaries, as outlined in their will or trust. This can lead to changes in ownership structure and voting rights, potentially impacting the corporation's decision-making processes (most often in a negative manner). To avoid this, parties can stipulate in advance as to what will happen to their equity—such as creating a limited window of time for the remaining partner(s) to buy the equity from the deceased equity holder’s estate, often for a stipulated sum).
- Divorce: In the event of a marital divorce, the ownership of jointly-held equity in the business may be divided between the spouses as part of the property settlement. This can result in fractional ownership or necessitate the sale of shares to achieve a clean division of assets. The downside to the business is that it may involuntarily be forced to honor the former spouse of the equity holder as a equity holder themselves. Aside from obvious the interpersonal conflict that may create, this would also complicate fundamental decision-making for the company, since there is an additional party whose consent may now be required before making decisions for the company.
- Dispute: Disagreements among equity holders regarding the company's direction, management, or financial performance can lead to legal battles for control. This can result in changes in ownership structure, mergers, or even the dissolution of the corporation. At a minimum, it can make life miserable for the parties while they try to navigate conflict with someone that they may fundamentally disagree with. In order to anticipate and minimize the potential for messy disputes, equity holders can establish some ground rules for how they’ll navigate conflict—such as stipulating to sit down with a third party neutral mediator—before they resort to legal action.
- Distribution/Dilution: Except for non-profits, every company exists (at least for the most part) to make a profit for its equity holders. However, the timing, amount, and frequency of profit distributions is up to the equity holders themselves to determine. Depending on risk tolerance and fiscal philosophy, equity holders may find themselves at odds with one another on these items. In addition, the issuance of new equity units (i.e., shares of stock, or units of membership interest) by the company has the potential to dilute—or reduce the effective percentage of equity vested in the individual—a holder’s equity. Fortunately, all of this can be addressed and agreed upon in advance of any conflict.
- Dissolution: How long will your business exist? Do you have a specific end in mind? Or do you wish to pass it on to future generations? What happens if the primary owner plans on winding down in a few years? Or, if the parties can’t stand each other and want to go their separate ways? These are questions that every business owner should ask themselves. And, in a business with multiple equity holders, this question is especially important, since most often the consent of a majority (or all) of the equity holders is required in order to dissolve the company. At dissolution time, the business’s assets are liquidated, and the proceeds are distributed to equity holders according to their ownership percentage.
Prepare for Annual Reporting Requirements
Each year, the Florida Department of State requires all business organizations to file what’s known as an ‘Annual Report’. The deadline is May 1st, and in order to avoid having this deadline sneak up on you, here are a few things you can do to prepare:
- Gather Information: Begin collecting information for your annual report—such as changes in ownership, officer status, principal and mailing addresses, registered agent details, and business address updates.
- Ensure you file on time: Currently, the deadline for all entities filing annual reports with the Florida Department of State (DOS) is May 1st of each year. This is a strict requirement—meaning, even if you are 1 minute late, you must pay a $400.00 late fee in order to keep your business active.
- Obtain Registered Agent Services: If you’re not 100% sure about what services your registered agent offers, or if you’re not confident that you or another member of your company can meet all of the requirements for being registered agent (including timely receiving and forwarding all legal correspondence), it may be beneficial to consider naming a professional registered agent. At Munizzi Law Firm, we offer registered agent services that will meet all statutory requirements, give you peace of mind that you’re not missing important legal correspondence, and will ensure that your annual report is timely filed (assuming you provide us with timely information in order to do so).
Revisit and Set New Goals
- Reflect on 2023: Take some time to analyze your achievements and identify areas for improvement. Evaluate your progress towards existing goals and assess whether they remain relevant to your business vision.
- Set S.M.A.R.T. Goals: Develop new goals for 2024 using the S.M.A.R.T. framework. Ensure they are Specific, Measurable, Achievable, Relevant, and Time-bound. Munizzi Law Firm routinely advises our Fractional Counsel on how to implement these goals, providing legal guidance and support every step of the way.
- Consult Appropriate Advisors: It truly takes a team to run a successful company, and on your team you should have a panel of professional advisors—to include 1. Financial/accounting professional, 2. Banker and commercial lender, 3. Commercial insurance agent, and 4. Business lawyer. This list is not exhaustive, and your unique situation may call for additional advisors. However, if you are lacking trusted professionals for each of these basic areas, now is a great time to find them. The best place to start is by asking those that you do trust—for instance, if you love your commercial insurance agent, you may want to ask them who they’d recommend for you as a banker. And of course, we are more than happy to recommend the professionals we trust our clients with as well.
Review and Update Company Policies
- Employee Handbook: Review your employee handbook and update it to reflect any changes in company policies, benefits, or procedures. This ensures clear communication and promotes a positive work environment. Munizzi Law Firm can review your handbook and ensure it complies with all applicable labor laws.
- Benefits and Compensation: Evaluate your current employee benefits and compensation packages and consider making adjustments to attract and retain top talent. If you have executive level employees, now is a great time to memorialize their relationship in an executive employment agreement; or, if you already have one, we can review and update it for you as necessary to ensure that all appropriate best practices and regulations are incorporated.
Prepare for Legal and Regulatory Updates
- Stay Informed: Remain updated on any legal and regulatory changes that may impact your business operations in the coming year. Munizzi Law Firm can provide ongoing legal guidance and ensure your business remains compliant with all relevant laws and regulations.
- Action Items:
- Schedule a consultation with Munizzi Law Firm to review your business governance and other documents and ensure they are up to date and compliant.
- Gather information for your annual report and contact Munizzi Law Firm for assistance with preparation and filing, as well as signing up for Registered Agent Services.
- Meet with your team to review and set SMART goals for 2024.
- Review your employee handbook and benefits packages and consult Munizzi Law Firm for guidance on updates and compliance.
- Subscribe to Munizzi Law Firm's blog and social media channels to stay informed about legal and regulatory updates.
By taking proactive measures with your business, you can start the new year with confidence—knowing that you’ve taken care of establishing a firm foundation for success. At Munizzi Law Firm, we are committed to empowering small and mid-sized businesses to thrive in a dynamic legal landscape, and are thrilled to partner with you in achieving your goals this coming year. Contact us today to schedule a complimentary Strategy Session where our team will sit down with you face-to-face for a legal checkup!