My friend claims he can tell a lot about you by the trunk of your family van. His car’s trunk is the equivalent of a Zen Garden – stocked with nearly everything, from an emergency blanket to a high-quality light-up sign that can be placed on the road in case of a traffic accident.
It’s no surprise I rarely open my car’s trunk in front of him.
When it comes to business-related documents, entrepreneurs and business managers need to be like this guy. Documents play an integral role in protecting your business interests throughout its lifetime.
Here are fundamental types of business documents and why they’re essential… actually some or all may be essential. It depends on the nature of your business.
As with all legal and financial matters, hire a lawyer and an accountant.
Table of Contents
- Category 1: Business Founding Documents
- Category 2: Employee-Related Documents
- Category 3: Tax and Financial Records
- The point is…
Category 1: Business Founding Documents
As a founder, you must do a lot of research and make many decisions regarding your startup’s operations. While it is tempting to dig into your company vision and start actualizing your ideas, it is crucial to pause and cover legal bases first. Here are the core founding documents that you must put in place to avoid legal battles in the future.
1. Incorporation documents
Once your project changes from a mere hobby into something substantial, it is recommended to incorporate it, as this will make your venture a separate legal entity. You can incorporate your business by establishing a limited liability company (LLC) or a corporation. This process is straightforward as long as you have all the necessary documents. These include:
Business name reservation form (LLCs and Corps): Allows you to reserve a unique business name while you complete the business incorporation process. That means no one can claim that name.
Articles of incorporation (for corporations only): The details that go into the articles of incorporation vary widely but typically include the purpose of incorporation, the number & types of shares, and names and addresses of the board of directors. Other details include the business name, address, and principal place of operations.
Corporate bylaws: Outlines how officers, shareholders, and company directors will split control within the business and day-to-day operations. Corporate bylaws usually revolve around basic company information, frequency & procedure for essential meetings, election process of directors, types of officers & their responsibilities, business dissolution process, and more.
2. Founders agreement
This is an agreement between the founders and the business. It’s also known as a shareholder agreement, and it’s necessary for stock-issuing corporations only. It outlines the shareholder rights and responsibilities that are not mentioned in the corporate bylaws.
The shareholder agreement covers three essential components. These include share vesting, intellectual property (IP) assignment, and keeping track of equity (division of equity).
Now that you have incorporation documents and shareholder’s agreement in place, take a look at the double-edged sword – trademarking.
The top benefit of trademarking a business name is that it can reinforce your brand. This is good news. On the flip side, everyone with a similar sounding name will get an alert and given a chance to object. So, people who wouldn’t have been interested in your business will suddenly start paying attention.
Keep in mind that trademarks are phonetic and usually done by the industry sector. This is why you cannot launch and trademark ‘Appl’ just because it doesn’t have ‘E’ on the End.
4. Non-Disclosure Agreements (NDAs)
NDAs are essential in case you need to consult or have a conversation with an outside entity. They are intended to protect confidential and sensitive information from being made available by the outside party you consulted with.
You should think about the terms of your business NDA in advance. Should the NDA be mutual or unilateral? How long should it last? What information should be covered? These are some of the important questions you should answer when creating an NDA.
The specific founding documents you need vary depending on the type of business you intend to launch. If you plan to register a sole proprietorship, you may need a little more than an application for federal EIN (Identification Employer Number). Other forms of business require the founding documents mentioned above.
Category 2: Employee-Related Documents
Managing the right employee documents improves working relationships and can save you from headaches in the future. The latter sounds far-fetched, but it’s a reality.
For instance, you have terminated an employee for violating a certain policy. This employee may attempt to get unemployment insurance or sue your company for unlawful termination. Unless you have documented the policy and clearly outlined the employee’s responsibilities, it can be challenging to prove the alleged violation. In this case, it will be much harder for a judge to rule in favor of your business.
Here are employee documents your business must keep.
6. Recruiting records
The recruitment process involves many steps, including screening, interviewing, selection, induction, and onboarding. A human resource expert plays out each of these steps to choose the right candidate. All these processes must be documented to keep track of how and where the hiring process is headed.
The EEOC (Equal Employment Opportunity Commission) requires employers to maintain recruitment documents for compliance purposes. Some of the recruitment documents you must maintain include;
- Job advertisements
- Job position descriptions
- Application forms (or letters)
- Candidates’ resumes
- Interview notes
- Recruitment tracker
- Candidate evaluation form
- Reference check guide
- Offer letter
7. Employee contracts
This is a written proof of the relationship between you (employer) and an employee. It states the rights and responsibilities of both workers and the organizations they work for. Your business must safeguard signed employment contract forms, employee handbooks, NDAs, non-compete agreements, policy changes, written business policies, and other relevant documents.
8. Disability records
According to the Americans With Disability Act, both profit and not-for-profit organizations must maintain separate documents issues related to employee disabilities. Employee information such as requests for accommodation, disability-related insurance claims, and other related matters should be documented separately. These types of business documents can be helpful if the workers intend to pursue a disability insurance claim.
9. Medical benefits documents
All medical and health records your company collects must be kept separately from employee files. Document the details of medical insurance you offer to your workers and enrollment records. These documents can streamline the process of granting employee compensation in case of workplace-related illness.
10. Personnel documents
Keep accurate compensation documents, performance appraisal records, time cards, separation documents, disciplinary records, and references. Information from these records can help managers and supervisors provide the necessary training and development programs. It also helps keep the workers compliant with the local, state, and federal regulations.
11. Payroll documents
The Age Discrimination in Employment Act (ADEA), the Equal Pay Act, and the Fair Labor Standards Act require employers to maintain accurate payroll documents and supportive records. These include time cards and other records that support your company’s fair pay policy.
Pay discrimination lawsuits are common nowadays. These lawsuits could cost your business a lot of money unless you have sufficient proof that your business is compliant with the relevant wage and remuneration laws. This is why you should keep accurate payroll documents.
All employers should keep I-9 forms for all workers for several years after hiring or termination. Maintain accurate documents fully signed by the right party. If you must keep copies of employee identities, treat all workers equally, and attach these copies to the I-9s documents.
Note that Form I-9 verifies the eligibility of a person to work in the US legally. This requirement applies to United States citizens and noncitizens. Unless your business is I-9 compliant, you risk hefty penalties that could negatively affect your organization’s bottom line.
13. Workplace accident records
Despite preventive measures in place, accidents are still common in the workplace. The Occupational and Health Administration requires employers to find out what happened, why, and document these events. This information is helpful in evaluating risks in the workplace and implementing the right measures to prevent future accidents.
14. Workers’ Compensation documents
Suppose your work environment involves hazards that can lead to chronic or long-term illness. In that case, the Occupational and Health Administration requires you to maintain accurate records of worker exposure to hazardous situations and the related healthcare documents for at least 30 years. This information can help determine the total amount of workers’ compensation benefits in case of workplace-related accidents.
You must keep all employee-related documents for as long as possible. As mentioned earlier, the number of lawsuits involving employees and employers is increasing. Your company can be accused of racial discrimination, unsafe working environment, improper remuneration, and other unpleasant issues. Having the right types of business documents can protect your business from the negative impact of these lawsuits.
Category 3: Tax and Financial Records
You can choose any recordkeeping system best suited to your company that clearly shows your revenue and expenses. While the nature of your business affects the tax return records and other types of business documents you must keep, the Internal Revenue Service requires every business to keep the following records.
15. Tax returns documents
The tax return is a form filed with the tax authorities. It reports income, expenses, and other important tax-related data. Accurate tax return documents allow you to calculate your tax liability, schedule timely tax payments, and file the necessary refund request for the tax overpayment.
16. Financial records
An important part of business finance management is keeping accurate and well-organized financial records. Whether it’s a social security card for wages reporting reasons or a utility bill to show proof of residency, there can be many times when your business needs to locate a financial document. Other benefits of having well-kept financial documents include:
- It is easier to monitor the overall growth of your company
- Effective financial data analysis can help strategize market-oriented policies
- Makes it easier to identify sources of income and track deductible expenses
- Facilitate effective decision-making and a higher level of work efficiency
- Allows your business to achieve complete regulatory compliance
Some of the financial records you must maintain include audit books, financial statements, purchase reports, sales reports, and more.
17. Payroll tax records
Your business pays tax on its profits. But this isn’t the end of your tax liabilities. The Internal Revenue Service requires you to collect tax from your workers on their income. This amount of tax varies depending on the workers’ salaries and other factors.
When you collect tax from your workers, you are simply acting as a fiduciary agent for the government. This is your obligation as a business owner, and failure to maintain accurate payroll tax records could lead to hefty penalties.
18. Business asset documents
Does your company own assets? You must maintain an accurate record of business asset purchases, titles, deeps, and other relevant ownership documents. If you have taken loans, document such liabilities as this makes the process of filing returns easier.
Keep in mind that the IRS can request your business data for the past six years or more if it suspects a significant tax violation. So, it’s important to play safe and keep accurate tax returns and financial records for as long as possible.
19. Legal documents
Legal documents for companies play an integral role in protecting their interests and that of their owners. Some of the common legal documents that you must maintain include;
- Business contract with affiliates, vendors, and independent contractors
- Your business permits, certifications, and licenses
- Yearly reports filed with the secretary of the state
- Indemnity agreements
- Board meeting minutes
- Lease contracts and the necessary documents
- Insurance policy
- Real estate records
These documents outline your business relationship with other entities. For example, a business contract with an independent contractor outlines the contractor’s responsibilities and the expected consideration or payment for the services provided.
To protect your business interests, you must keep these legal documents for as long as the state’s statute of limitations lasts for potentially damaging legal challenges and disputes. For instance, the statute of limitations for a breach-of-contract lawsuit ranges from 3 to 15 years in some states.
The basic principle of keeping different types of business documents is simple. You can never be too organized or archive a business record for too long.
The point is…
Keeping up with receipts, stakeholder contracts, financial statements, and other types of business documents is often the bane of a business owner’s experience. But ensuring your business documents and the handy data they contain are properly kept protects your company interests.
Your business documents are more than just a formality. They are an important piece of your business’s foundation. And you need a stronger foundation for your company to stand out in the ever-growing competition.
A wise professor once said, “It is better to have them and not need them than need them, and you don’t have them.”
Jon runs the place around here. He pontificates about launching and growing online publishing businesses, aka blogs that make a few bucks. His pride and joy is the email newsletter he publishes that’s “the best blogging email newsletter around.”
Hyperbole? Maybe, but go check it out to see what some readers say.
In all seriousness, Jon is the founder and owner of a digital media company that publishes a variety of web properties visited and beloved by millions of readers monthly. Fatstacks is where he shares a glimpse into his digital publishing business.