Now is the Time to Clean Up Your Corporate Affairs

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.

The Legal Memorandum

The legal memorandum is a perfect topic for BizB4Law.  Remember my central theme – business issues are more important than legal ones, and the legal strategy and approach, therefore, must always follow from the business objectives and realities.  So where does that leave the legal memorandum?

The legal memorandum has its proper purpose, although it sometimes gets lost.  The purpose is not to protect the lawyer from the client or allow the lawyer to avoid providing real legal advice and recommendations.  In fact, although it happens all too often, there’s almost no business value in a legal memorandum that states something like:  “Given our limited understanding of the facts as you’ve explained them, and in light of the substantial uncertainty as to how the project will proceed and how a court might analyze this particular situation, we believe it is more likely than not that your proposed legal structure will be found to be permissible.  However, we must qualify our opinion by . . .”

The purpose of a legal memorandum is to provide necessary analysis so that an informed decision can be made by the client in light of specific and complex legal issues or challenges impacting the business objectives.  In other words, the process starts with the specific business goal and the existing facts and circumstances – if, based on those, there are complicated legal issues that must be addressed, a memorandum may be appropriate.  If not, you don’t need one.  Then, the research should specifically analyze how the law impacts this situation (not some abstract or unlikely situation in the land of make-believe).  And more importantly, the memorandum should provide actual advice and recommendations as to how the business objectives can be met even in a challenging environment, and even when the client’s desired approach may need to be modified.

The next time you read a memorandum from your lawyer, I hope it’s consistent with this article – if not, you may have detailed legal analysis but still be left questioning the business value and purpose.