When you are assisting a client with forming and organizing a new business the drill is pretty straightforward: collect information about the founders and their proposed business and walk them through the issues they need to consider when setting up their governance and compensation structures. In many cases, however, the "new client" will already be operating and you will need to obtain as much information as possible about the business and operations of the client so that you will be able to start making a contribution as quickly as possible.
While you will eventually want to sit down and speak with all of the key executives, managers and employees, as well as the client's major outside business partners, the best way to get started is to obtain and review certain basic documents before the new assignment actually begins. The information in these documents can be used for initial issue-spotting and can also serve as the foundation for asking the right questions in subsequent interviews and understanding how contracts that you will be asked to review fit into the overall business plan of the client.
The range of documents that should be reviewed will vary depending on whether the client is a "reporting company" and thus required to make certain information publicly available in periodic filings with the Securities and Exchange Commission ("SEC"). Assuming that is the case, you should ask for, or download on your own from the SEC website or a commercial service, the following documents:
- The reports on Forms 10-K, 10-Q and 8-K filed by the company over the last three years (or such shorter period that the company was required to file such reports);
- The company's S-1 registration statement if the company completed its initial public offering within the last three years;
- The proxy statements filed by the company, and disseminated to shareholders, over the last three years (or such shorter period that the company was required to makes such filings); and
- The contracts and other documents that have been filed as exhibits to the company's SEC filings over the last five years (or such shorter period that the company was required to make such filings).
While you should read everything closely, there are certain disclosures that should be carefully reviewed--the description of the company's business and the risk factors associated with the business, the notes to the company's financial statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"); the disclosures made in the Form 8-K reports; and projections of future performance and anything else that might be deemed a "forward-looking statement".
If the new client is not subject to the reporting requirements you should ask for copies of comparable documents such as the business plan or offering circular distributed to potential investors and other formal communications to investors and shareholders over the last two or three years that include material information regarding the company.
Material contracts for a privately-held company will need to be obtained directly from the CEO and other senior managers of each of the departments. When requesting such information you should take note of how long it takes to receive the contracts and where they are maintained within the company since you may want to suggest changes in the records retention procedures down the road. When asking for contracts you should apply and explain the same standard of materiality that would be used if the company was required to file the documents with the SEC and that means you should obtain, at a minimum, copies of the charter documents of the company (i.e., articles and bylaws with all amendments); all employment-related agreements, including stock option plans and agreements and change-of-control agreements with senior executives; major real and personal property leases; major contracts with outside business partners (e.g., contracts relating to R&D, manufacturing and sales/distribution); and pension and benefits plans. Stock records, or at least a list of the shareholders and option holders (including the number of shares owned or subject to option), should also be obtained.
Contracts, documents and policies from several other areas should also be obtained regardless of the reporting status of the client. First of all, you should request and obtain copies of "boilerplate" contracts and terms and conditions that are continuously used in business relationships with employees, vendors and customers. For example, you should make sure that you look at the company's employee confidentiality and assignment of inventions agreement and the company's personnel handbook and policies. Also review the company's standard terms and conditions of sale and purchase on its invoices and purchase orders. Second, you should make sure that you review the minutes of the board of directors and the charters of each of the committees established by the board, particularly the audit and corporate governance committees. You should also seek and obtain background information on each of the directors and senior managers including resumes and, the case of management, a timeline of their progress and advancement within the company. Third, you should ask for copies of communications with the company's outside auditors regarding legal matters over the last few years. Finally, you should make sure that you review the company's recent press releases and copies of promotional materials that the company regularly disseminates to the public regarding its products and services.
Alan S. Gutterman is the founder and principal of Gutterman Law & Business, a leading provider of timely and practical legal and business information. His publications are available through Thomson Reuters or at Westlaw Next at Business Counselor.