Introduction
A legal health check is essentially an audit or review of the legal affairs of a business. It is quite important but often overlooked by businesses until there is a problem. In this article I give some hints on some of the key aspects to be covered during such a legal health check.
Service providers
Obviously, the best people to carry out a legal health check for businesses are commercial lawyers. These are lawyers who focus on businesses and supporting those businesses through the provision of legal services.
Key aspects of legal health check
Some of the key aspects of a legal health check include those explained below.
Legal status of the business
Commercial lawyers will establish the correct legal status of the business. For example, the business might be a company, a partnership, private business corporation or not registered at all. Alternatively, it might be using an assumed (trading as) name without the name being registered.
Key licences
Businesses that are regulated require licences. Some may require annual or regular renewals. Commercial lawyer usually know which licences are applicable to which businesses.
Review of key contracts
Key contracts with suppliers and customers must be reviewed regularly as they are at the centre of businesses. They ought to be reviewed for sufficiency of documentation, legal risk, renewal or even termination, the latter if they are onerous. You will be surprised that some important business contracts will be oral, or people will simply work on the basis of an understanding when a contract could make the situation more secure.
IT systems
Documentation of IT systems require review for sufficiency and risk mitigation. Businesses have become increasingly reliant on IT systems. Such systems come up with annual subscriptions, renewals of even upgrades. Some service providers may stop supporting certain old systems.
Litigation
Commercial lawyers will also carry out a review of previous, current and contingent or possible future litigation and their possible implications on businesses. Claims by creditors may result in huge obligations. Disputes with clients may result in reversal of sales transactions or loss of future business. Some disputes with regulators may result in fines or even termination of licences.
Review of Human Resources contracts
A business which is properly run ought to have documented HR contracts and policies. At a minimum, contracts for senior executives ought to be reviewed.
Governance structures and systems
Commercial lawyers can be engaged by their clients to review governance structures and systems. This may cover shareholding issues such as shareholders’ agreements, Articles of Association, compliance with Companies and Other Business Entities Act (Chapter 24:31) or other relevant Acts. The board of directors’ tenure and conduct of business may also be reviewed. This may include the board charter, decisions made by the board and those referred to the shareholders.
Taxation
A commercial lawyer can carry out a high-level review of taxation by checking on registration for taxes, payment of taxes, appointment of public offer and so on. Detailed reviews are usually carried out by tax accountants or advisors.
Conclusion
A legal health check is important to every business. Unfortunately, some businesses overlook this until there is a major problem such as litigation, a huge tax obligation or loss of a major contract.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA (EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com and gohofisi@gmail.com. Visit https://hofisilaw.com for more articles.
