In order to keep the entrepreneur on track, there is a need not only for a financial audit, but for a legal audit as well.
A legal audit can help the entrepreneurs to assess the legal risk which is a part of the risk management in entities.
Of course, the extent and complexity of the legal audit varies depending on the type, size and stage of growth of the company, the type of business, the number of shareholders and employees etc.
A wide range of issues may be examined by performing a legal audit in the entity and some of them are as follows:
-choice and structure of the entity, corporate acts or documentation of the board of directors, utilization and protection of intellectual property rights including copyrights, insurance coverage, methods of marketing, pending and threatened litigation and/or arbitration, employment agreements, contractual negotiations and conclusion of them, product liability, a review of sales and collection practices, tender procedures conducted by procurement etc.
Moreover, the issues such as the business establishment in foreign jurisdictions also may be analyzed by performing a legal audit.
A legal audit may be performed either before a specific event or in a normal period of business transactions. Undoubtedly, to conduct such an audit in a normal period of business transactions can help avoid legal sanctions or obstacles, if any kind of a control takes part in the entity.
The risks of non-compliance with the legal requirements can be as follows:
-Failure to keep proper books, records or mixing personal assets with business assets which may be leaf to the ability by third parties to ''pierce the corporate veil''
-Failure to obtain legal permits and licenses that could lead to fines, penalties, damages by contracts or by default rules and sometimes, to closure of the entity
-Failure to comply to the requirements of certain laws and regulations which are prevailing in the place of a business
-Failure to comply to the requirements of bidding procedures and contract law rules
-Failure to have correct employment applications, personal handbooks and general and specific employment policies
Failure by the shareholders, directors of the company to keep accurate records and minutes of its decision-making procedures and documentation
Thereby, this legal audit takes a time and effort, it is not only necessary, but beneficial to conduct such an audit in entities, in other words, it is .
In order to achieve this goal, there is a need to take certain actions on the legalization of such a requirement for entities by the legislative body of a government. Some states have already adopted certain legal rules in the legalization of this requirement.
Thus, upon the legalization of such a rule, the entities shall be audited by corporate lawyers of top or medium law firms and by this way the arising legal sanctions or obstacles shall be avoided. Notwithstanding, such a rule does not exist in the legislation of most of the states, shareholders and/or directors should still aspire to conduct such a legal audit in the entities.
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