The Importance of Corporate Governance Documents

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Corporate governance documents are much more important than many new businesses realize. Down the road, insufficient or inaccurate legal documents can lead to costly legal challenges that have the potential to be incredibly damaging to a business. It is important to understand that a legal professional experienced with such matters can offer helpful guidance and counsel. In Arizona, the experienced corporate governance attorneys at Harrison Law, PLLC can help you understand your legal rights and options regarding your corporation, and can be reached by calling (480) 320-2310.

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What Is the Purpose of Corporate Governance Documents?

When forming a business, a first action to take is deciding what business structure will be most appropriate. Regardless of what business structure is chosen, the one thing that is true for all is the need for and importance of corporate governance documents that correctly establish a legal foundation for a company.

Having a structure or framework detailing how exactly a company will run and what ownership will look like is essential. The rules that are established and the practices that are formed will ultimately regulate the running of a business. These guidelines will dictate what steps to take throughout the life of a business and what will happen in various situations that could arise. Having such guidance can lessen confusion when issues do arise, keep business actions clear and consistent, and also potentially reduce financial burdens that could come with litigation.

Is An Attorney Required in Order to Draft Governance Guidelines?

The Harvard Law School Forum on Corporate Governance outlines the principles of corporate governance showing how complicated and intricate they can be to create alongside the critical importance they have.

With that in mind, it is not a requirement that a business owner work with an attorney to put together governance documents. A business owner can draft their own legal documents, or they can look to find standard forms online. However, if the specific needs of the business are not addressed, then unintended repercussions that can not only be costly but also time-consuming may follow.

An experienced business attorney at Harrison Law, PLLC, can evaluate a business owner’s goals and objectives and use these in the structure of governance guidelines. In this regard, an attorney can help a business owner put together appropriate corporate guidelines that may provide benefit in the long term by helping the business avoid litigation or play a key role in reducing time spend in court.

Top Examples of Benefits of Having Concise Common Governance Documents

Consider the following common situations where governance documents are critical:

Attracting Investments

For a successful business to continue to grow, additional investments may be necessary. Prospective investors may put heavy weight on the governing documents a company has and their track record of adhering to their own internal and external policies. If the terms are agreeable to an investor and the company follows their governance guidelines in good faith, investments may be much easier to secure. This is compared to other cases where governance is lacking or when a company does not adhere to their own policies. When this happens, it can be much more challenging for investments to be made.

Selling A Company

A smart buyer is likely to take their time and engage in due diligence when researching a company of interest. When governance documents are ambiguous and not clear, this can cause delays and even withdrawal of interest in a sale. Even if the buyer still wants to move forward, poor governing documents can lead to other problems such as disputes between owners.

Handling Internal Disputes

Governance documents can outline what happens when internal conflicts or disagreements arise within a company. Inevitably, there will be challenges and arguments that may happen between internal parties at some point during the life of a business. Legally binding documents that are in place can detail the way that these are to be handled so that procedures are clear and transparent. Having corporate governance documents that are comprehensive and sound can reduce the potential that disputes elevate to the level of needing court involvement.

Is It Expensive to Create Corporate Governance Documents?

It can be argued that spending the time and putting the financial resources forward to establish governance documentation early in the life of a business can pay off considerably in the long-term. While the costs for using professional assistance to put together governance documentation can vary, it is often a misconception that such actions are going to be extremely onerous on a business’s financials. Attorneys that understand corporate governance can offer well-organized and cost-effective solutions. In this respect, it does not have to be a very expensive task for a business owner to have documents customized and prepared for their specific needs and circumstances.

Once governance documents are in place, they are not without adjustment. As a business changes, so can the guidance and language of these legal documents. Regularly reviewing them can help a business owner make the changes necessary to keep guidance current with the present needs of the business.

Speak To an Experienced Arizona Business Attorney Today

The importance of working on corporate governance documents is significant. Even the U.S. Securities and Exchange Commission (SEC) discuss the critical nature of focusing on the corporate governance process and how it can benefit companies. Making sure your company has the right legal documentation in place is essential. For help with this, the experienced Arizona business attorneys at Harrison Law, PLLC, welcome you to come in and learn all of your legal options for your company. If you would like to schedule a free consultation with a dedicated attorney to discuss your needs and requirements, you may call (480) 320-2310.

© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.

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