Wise business owners and managers in the Virgin Islands, as elsewhere, effectively reduce operating costs and avoid legal problems by using preventative law practices. The legal health of a business in America’s Paradise must be monitored and kept up to date with changes in the law. As on the mainland, Virgin Islands businesses can avoid disputes, injuries and damages by engaging a business attorney before these issues arise as current problems. This article attempts to give a brief overview of the value of preventive law through the use of the legal checkup. Your lawyer will help you to adopt the strategies that apply to your particular business. Preventive law practices are also much less expensive when compared against the legal problems that develop down the road when a business is left unchecked.

A legal checkup or audit is akin to an accountant’s financial audit or a physician’s medical examination. Often a legal check up can be conducted simply by answering the questions about your company on a form prepared by your lawyer. Other instances may require more in depth “due diligence” with respect to your company depending on the answers given on the questionnaire or the complexity of your company’s corporate structure. 

During the legal checkup, your lawyer will focus on examining your company’s business records and practices and recommend steps that you can take to protect the legal health of your business. Typically your lawyer will review documents such as your corporate charter, corporate minute book, purchase order forms, sales contracts, employment agreements, and loan agreements. Afterward you will receive a written report from your lawyer that summarizes the findings and offers recommendations to strengthen any potential weaknesses that the audit may have uncovered. This will allow you to address these weaknesses before they become major legal problems.

Some common problems areas and questions relating to each are discussed briefly below.

Corporate Structure: Are you using the right corporate entity for your business? For example although a partnership shields you from additional taxes, your personal assets can become a liability should the partnership assets be insufficient to cover any damages awarded against your business. Your lawyer may suggest that you take advantage of some of the recently enacted corporate entities in the Virgin Islands that offer limited liability protection and preferential tax treatment such as a limited liability company or limited liability partnership.

Corporate Formalities: Every business runs the risk that a court may “pierce the corporate veil” and thus expose shareholders, managers and members to personal liability. Does your business keep separate bank accounts from your personal accounts? Has your business held its annual meetings and kept accurate corporate records? Have the authorized officers and signatories of the company been signing checks and other business documents in their correct capacity? Have all of the proper corporate documents been filed with the appropriate government agencies?   The potential exposure to personal liability will depend upon the answers to these questions. 

Governing Documents: Does your company’s bylaws or operating agreement discuss the consequences associated with the death, disability or bankruptcy of a member, owner or manager of your business? Do the agreements contain provisions for adding a new member or shareholder to the company? Should existing members and shareholders first be offered the opportunity to increase their shares or membership units? The legal audit is the perfect vehicle for your lawyer to determine if your business has adequately prepared for these issues.

Intellectual Property: Does your company have a reputation based in part due to its trade name or logo? Has your company taken the appropriate steps to protect any patents, trademarks, logos or designs?   The legal check up will help uncover whether your business’ intellectual property is properly protected.

Employees: Do you comply with the applicable requirements regarding classifying individuals as employees or independent contractors? Do you comply with the requirements of federal and territorial laws, which prohibit discrimination on the basis of race, religion, national origin, age, sex (including prohibiting sexual harassment), pregnancy, and disability? Do you understand how to prevent wrongful termination lawsuits? Your lawyer may recommend implementing new policies to your existing employee handbook to cover these issues.

Property: Does your business own any real estate? Where are the deeds held and are they in the name of the company or in your name personally? There are many potential tax and legal liabilities or benefits that depend upon the answers to such questions.

Your lawyer can meet with you to explain the audit findings and offer recommendations and explain how to avoid these potential legal problems. In short, preventive legal practices pay for themselves by helping you to avoid legal risks, recognize strategic legal advantages and deal with problem areas before such problems become expensive legal claims or lawsuits against your business.

Remember that in order to protect the legal health of your business, consult your lawyer when contemplating business ventures, entering into agreements with vendors or customers, and when developing policies for internal personnel, sales and purchasing matters. Keeping your business healthy will help the business remain profitable and allow you to enjoy all that America’s Paradise has to offer.