HOW TO CONDUCT LEGAL AUDIT OF A COMPANY IN RWANDA
Law applicable
THE CONSTITUTION OF THE REPUBLIC OF RWANDA
THE Law no 17/2018 of 13/04/2018 governing companies
AMONG OTHERS
Please note that the laws applicable will depend on the dealings and issues of the company in at hand however those
Successful companies in the world over periodically carry out legal audits to ensure that there are no existing legal issues which could cost them significant money or could interrupt their business and if they exist they are solved. Audits are excellent preventive tools to improve legal processes and legal compliance in companies or corporations.
Some of the reasons why companies should conduct Legal Audit
The major reason as to why most companies collapse in the world is because they do not conduct legal audit and if they conduct it they do not implement the recommendations.
Through legal audit you can save a company from loosing large sums of money i.e. employment Contract.
Every company has hidden legal problems/issues and if a company can uncover and resolve these hidden legal problems, it prevents significant losses.
One should not perform legal audits only when there are problems; audits can uncover legal issues’ to do with compliance and new revenue collection opportunities among others.
Many legal issues arise from out-dated forms, failures to comply with laws, analyzing contracts or agreements or not properly establishing a process. An audit will precisely identify, legal issues including non-compliance and develop ways of resolving the same.
Auditing your processes can build a culture of compliance which will lessen the need for audits and reduce the chances of a catastrophic financial interruption to your business.
A Legal Audit examines chosen legal issues, processes or areas. The company’s legal documents, practices, and activities are thoroughly, but cost-effectively, audited to determine if the business operations are in compliance with existing local and international laws and regulations.
The legal audit and subsequent analysis evaluate the company’s past, current and future legal issues in light of the company’s needs and industry standards.
The complexity of the audit depends on a company culture, company industry, and the number of shareholders, employee population, and other factors. Each audit is unique and must be based on the factors unique to the company and the audit subject.
After the audit is complete, an Audit Report must produce specific recommendations.
STEPS TAKEN WHILE CONDUCTING LEGAL AUDIT.
The first step is to determine the audit goals and audit scope. It is critical to properly define the audit goals and scope. The scope will be based on past company legal issues, your regulatory environment, the operational area involved, possible future legal issues, and common legal problems in your industry. A good legal audit is precise efficient and unobtrusive to the company.
Before auditing, a transactional lawyer makes a draft Audit Plan for review and comment by the company management and if need be the draft Audit Plan is discussed between the transactions lawyer and the company senior management representatives.
After the Plan is agreed upon, the transaction lawyer creates interview questions, a questionnaire, Request for Information (RFI) and distributes them to people knowledgeable of the involved area within the company. The Questionnaire will cover a myriad of topics. For example, the questionnaire would ask about company past practices, the location of documents, the identity of personnel, current legal forms and when the forms were last reviewed, the nature of the business, claims and disputes with competitors, customers and vendors, past government investigations, current competitive environment, future legal issues, legal expenditures, whether and how your attorney advises the company, how the business operates ,company legal documents ,agreements ,capacities, company regulations among others.
The documents provided by respondents and their responses will then be reviewed by the audit team. The audit team may also interview appropriate employees.
It’s possible that answers from first round may lead to another round of inquiries. However, if the answers are fairly straightforward, only one round of inquiries can be satisfactory.
After the review is complete, the auditing lawyer analyses the findings and generates recommendations. The recommendations are contained in an Audit Report. This Report states whether (and how) the company is out of compliance with the laws and contains practical and actionable recommendations.
The Audit Report contains all the key information obtained during the legal audit. This report will allow business executives and managers to have easy access to information for future use.
Then, the company will create the plan to implement the recommendations. It is common that the audit lead to creating or revising procedures and manuals, which may help to prevent future problems. Training is also commonly part of an audit team’s recommendations.
Benefits of a Legal Audit
The most important benefit of a legal audit is to reduce the company’s potential legal liabilities. A successful audit shows company’s how to fix procedures and policies before their practices result in lawsuits or even criminal penalties. Successfully implemented audits improve the functioning of the area which was audited. For example, a litigation audit can help companies minimize liability from current litigation, manage current lawsuits better, avoid future lawsuits, respond to important pleadings quicker, retain the proper documentation for trial, maintain better communication with outside lawyers, and better predict litigation costs.
A legal audit helps companies remain compliant with existing laws and reveals precisely how to comply with a myriad of laws. Legal Audit may also help the company identifying positive opportunities such as new licensing revenues from a patentable technology uncovered during the audit. Still on generation of new revenue opportunities, for example, a company can have numerous patents or trademarks but might not have reliable methods to ascertain that infringements exist. Your executives may believe it is acting upon infringements, but an audit can tell you that there is in fact no such effective process. Or, executives may believe employees know how to identify and protect intellectual property developed by the company. Without specific training, this may not be the case. Other revenue opportunities can include opting out of class action settlements such as pricing settlements from utilities, trash haulers or other vendors
Key elements
The following checklist is not exhaustive because as mentioned earlier, legal audit is conducted depending on the concerned company’s concerns and there is no single formula nevertheless the check list below is very important for any transaction lawyer to consider while conducting legal audit of Any company :
Form of organization and its compliance
Incorporation and governance; as you need to review
Company incorporation process and documents,
Return of allotment
Company Annual returns from the year of incorporation to date
Filled company forms.
corporate structure,
Articles of association and memorandum of association,
corporate files:
minutes of Board of Directors meetings,
minutes of shareholders meetings,
resolutions adopted,
Shareholders,
shareholders register,
instruments of transfer of shares,
resolutions to issue shares,
Deeds of issue of shares, among others.
State corporate filings like statutory annual reports
corporate governance related policies including conflicts of interest and ethics
corporate insurance coverage
authenticating instruments among others
Intellectual property compliance
Status of trademarks, trade names, domain names, and copyrights
Proprietary information that should be protected
Policies and third party agreements relating to non-disclosure of confidential information and ownership of intellectual property created by employees and contractors
Procedures for maintaining confidentiality of trade secrets
Licenses, contracts and other agreements relating to intellectual property and computer software to which the organization is a party or a third party beneficiary
Grants likely to have IP provisions
Joint venture agreements regarding production, transfer of know-how, technical assistance and similar agreements
Agreements of joint research and development
Tax laws compliance
Compliance of substance of tax laws
Compliance of procedural tax laws
Past cases of interests, fines and penalties for non-compliance of tax laws
Assets and/or properties
Documents evidencing title to all material assets
Leases of assets
Distinction among private , customary land tenure , , free-hold and lease hold properties
Positive or restrictive covenants relating to the use of any property of the company
Trade agreements
Sales agreements (whether conditional or not)
Purchase agreements including supply agreements and service agreements
Agency agreements, marketing agreements, distribution agreements
Lease or hire purchase agreements
Joint venture agreements
Non-competition agreements
Standard forms of purchase and sale orders of the company
General sales conditions and general purchase conditions of the company
Human resources and personnel issues
Employee manuals, handbooks and policies
Distinction between employment contracts, agency contracts and independent contractors
Employment contracts and appointment letters
Procedures and practices for use of temporary workers
Procedures and practices for terminating employees
Employees benefits and compensation policy
Main terms of labour agreements
Contracts
contracts and schedule notification of contract renewal dates
Compliance with representations and warranties
Policy for internal contract review, external review by counsel and execution of contracts
Contracts with related parties and compliance with procedures for disclosing conflicts of interest
Business relationships not covered by a written agreement
Financial
Internal/external audit procedures
Internal control procedures
A list of all banks with which the company has a relationship, including a description of the type of account and the account number
All agreement relating to borrowed money or lines of credit , Agreements relating to any loan or guarantee of obligations of any third party, whether affiliates or not Agreements for the granting of a mortgagor other security interest (s) in the company’s assets or properties, Main terms and conditions of securities: Registration of securities, mortgage deeds, Inter-company or inter-group indebtedness and securities or guarantees given in connection therewith;
Litigation and/or lawsuits, Existing or threatened lawsuits
Legal barriers that affect day-to-day operations, other legal barriers, including barriers to growth and success
Author is A regional transactions legal consultant (ADVOCATE) at NOA REGIONAL ASSOCIATED ADVOCATES AND LEGAL CONSULTANTS.
Emailaddress: onlinetransactionconsultancy@gmail.com ,
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NOTE: whereas the author has made necessary efforts to ensure the accuracy of this post, it is not intended to provide specific legal advice to a particular individual as individual situations may differ.
For specific technical / legal transaction advice on this subject matter and related subject, you may contact the author at online consultancy fee, or contact any transaction legal consultant of your choice. For avoidance of impersonation, all email correspondences/communication from me to you must be followed up with a phone call on the above mobile number to verify the contents of replies from my email account pertaining a given subject matter.. © Copyright 2018 okumu martin
