Consider these fact patterns:
• A governmental agency commences an investigation regarding your company.
• Your company applies for a necessary license or permit.
• Your company gets sued.
• A prospective major investor wants to invest $5 million in your company.
What do they all have in common? Very little, other than in each of these situations it’s extremely likely that you will be asked to confirm that your legal structure and corporate affairs are in order – and if they’re not, it could prove troublesome and expensive at a minimum, or fatal to the deal or even to your company’s survival at the extreme.
So what should you do about this? Simple – you should ask your legal counsel to quickly audit your corporate books and records to make sure they’re in order; and if they’re not, you should get them in order asap.
You may be asking – what will this cost, and can’t we just wait until the need arises to get our “corporate house in order?” The answer to the first question is, not as much as you think. The answer to the second (and related to the first) is, only if you can afford the potential downside of an adverse determination by the agency, licensor, judge or investor. In other words, if you’re willing to live with the risk of your company being shut down, a plaintiff getting a large judgment against your company (AND EVEN YOU PERSONALLY), or an investor choosing to invest his $5 million with someone else, all because it may save you a little inconvenience or money in the near term – then you don’t need to clean up your affairs. If, however, you want to make sure your company both survives and has the chance to grow and flourish – then this is something you need to do now.