Most legal problems that hurt small businesses were visible a year before they became expensive — a lapsed filing, an unsigned contract, a misclassified worker, a template agreement that no longer matches how the company actually operates. An annual legal checkup is a habit that can catch these issues while they may cost hundreds to address instead of tens of thousands. Here is what that review should cover for a California business.
Entity health and corporate records
Start with the foundation. Confirm the entity is active and in good standing with the California Secretary of State and the Franchise Tax Board — a suspended entity generally cannot prosecute or defend an action in California courts until revived, and contracts made during suspension may be voidable. Check that the Statement of Information is current (California stock corporations generally file annually, while LLCs file every two years), that registered agent details are accurate, and that any required local business licenses and seller's permits are renewed. Then look inside: are minutes and consents up to date for the year's major decisions? Does the stock ledger or membership schedule match reality? Small gaps in corporate governance compound quietly, and they surface at the worst times — during a financing, a sale, or a lawsuit where a plaintiff argues the entity was a formality to be pierced.
Contracts: what you signed and what you never did
Pull the contracts the business actually depends on and ask four questions:
- Is it signed? Key customer and supplier relationships running on unsigned drafts or expired terms are renegotiation risks waiting for a bad moment.
- Is it current? Auto-renewal dates, price escalators, and notice-to-terminate windows should go on a calendar, not live in a drawer.
- Does it match the deal? Businesses evolve; contracts often do not. If the scope, pricing, or deliverables changed by email, paper the amendment.
- Do your templates still fit? The service agreement you adapted years ago may miss limitation-of-liability, indemnification, or payment terms you now need.
Employment practices, the California-sized risk
For most small California employers, employment law is the largest liability category. The annual review should test worker classification against the ABC test (Lab. Code § 2775), since contractor relationships that made sense at founding often fail the test as roles evolve. Check wage-and-hour basics — overtime, meal and rest breaks, expense reimbursement under Labor Code § 2802, compliant wage statements — and confirm required postings, harassment-prevention training deadlines, and an up-to-date employee handbook. Verify that every employee and contractor who creates anything of value has signed confidentiality and invention-assignment terms. None of this is glamorous; all of it is dramatically cheaper to fix proactively than after a demand letter arrives.
Intellectual property and data
Inventory what the company owns and how it is protected. Are trademarks registered, and registered to the right entity? Are domain names and key accounts controlled by the company rather than a founder's personal email? Do contractor agreements assign work product in writing? On data: know what personal information you collect, whether the CCPA's thresholds apply to you, and whether your privacy policy and website terms describe what you actually do. If you began accepting payment card data or added customer lists this year, your security practices and vendor contracts should reflect it.
Insurance, disputes, and the risk map
Read your insurance certificates against your real operations — coverage bought three years ago rarely matches today's revenue, headcount, or services. Review any simmering disputes: unpaid invoices aging past ninety days, a former employee making noise, a customer threatening a chargeback campaign. Early attention can keep some of these problems from becoming litigation. Close the checkup by updating a simple risk map: the five legal exposures most likely to hurt the company in the next year, and one concrete step for each.
Making the checkup actually happen
The reason annual reviews do not happen is that no one owns them. This is exactly the kind of recurring, fixed-scope work an outside general counsel relationship is built for: one scheduled review, a prioritized findings list, and a year of small fixes instead of one large emergency. Companies that run the checkup annually can reduce overall legal spending by addressing problems before they become more expensive.
Talk to a California business attorney
An annual legal checkup is a modest, fixed investment that surfaces problems while they are still inexpensive — and we can run one for your business. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
