What You Need to Know About Retention of Business Records
Companies and business owners often struggle with
how long they need to retain company documents and specifically electronic
data. Here is some general information on what should be saved, why, and for
how long—with a special focus on electronically-stored information (ESI).
Why Do I Need to Save Anything?
Companies keep records for tax and accounting
purposes, and also in case it is needed in the event of a dispute with a third
party. Since audits or claims may not arise for years after the events
occurred, having an organized record-keeping system may save a business
thousands of dollars. An email from a few years may not seem important now, but
if you do find yourself bringing a lawsuit or become a target of a lawsuit,
that email may be the difference between reaching a quick settlement or
engaging in costly litigation.
Generally, What Should I be Saving
and for How Long?
Most businesses should be saving any information
that is related to their finances, taxes, corporate status, human resources,
safety, insurance and customer communications. Regulated industries, such as
securities, real estate and banking professionals should look to the guidance
issued by their regulatory agencies.
Some general rules on length of retention are
provided below (may vary depending on the state your company is located):
Permanent/Do not Destroy- Corporate
Records, Stockholder/Member Records, Cash Records, Financial Statements, Tax
Returns, Title Documents, W-2 forms, Property Appraisals, Inventory Records,
Contracts, Trademarks, Patents, Notes Payable
10 years: Leases,
Terminated Employee records, Worker’s Comp Claims, Insurance Policies and
Claims, Employee Withholding Forms, Canceled Notes, Accident Reports
7 years: All other
Tax/Accounting/Payroll information, Human Resource files, Employee Benefits
information
5 years: Safety Records,
Vacation Files, Tip information
What is ESI and Why is it Different?
Nowadays much business is conducted via electronic
files such as emails and PDF documents. Such ESI is on the rise and is
considered vital in a lawsuit. Companies need to know how to handle ESI in
order to protect themselves. Electronically-Stored Information includes all
electronically-stored documents such as emails, voicemails, text messages,
audio and video files, social media, and websites. ESI often contains more
information than just a hard-copy of a document. A Microsoft Word file may
include time and date stamps, author and recipient information, and a summary
of the changes made within the file. A hard copy of the same document will likely
only show the final version. Knowing what constitutes ESI is important, but
correctly handling ESI is important as well. Failure to preserve ESI that may
become relevant in a lawsuit could expose you to liability. Courts can often
impose penalties against parties in a lawsuit for “spoliation” of the evidence,
that is, failure to preserve information that a reasonable person would have
preserved.
What ESI Do I Need to Save?
It really depends. Some things to consider:
1. The subject matter of the ESI: You should keep
emails about a transaction that has been a source of trouble or if litigation
has been threatened.
2. The likelihood of a lawsuit: If you think that
there is a chance that a situation will evolve into a lawsuit all ESI should be
preserved.
3. The cost of preserving the ESI: Some courts may
weigh the cost of preserving documents with the usefulness or relevancy of the
document. However the fact that it was too expensive to hold on to the
information is ultimately not an excuse.
What Is E-Discovery?
Most lawsuits involve a phase before trial during
which the parties conduct “discovery” – an investigation into the facts of a
case using tools such as written questions, an examination of relevant
documents and things, and interviews with key witnesses. “Electronic
discovery,” also known as “e-discovery,” is a subset of discovery and refers to
the process of identifying, processing, and producing ESI in a lawsuit.
I’ve Preserved the ESI. What Now?
Once you have identified the ESI that is relevant
to a potential or existing matter or lawsuit, the next step is to issue a
“hold” on the files so that the files cannot be inadvertently altered or
deleted. The files can then be available when and if necessary.
The business world is awash with data as more
companies conduct themselves through electronic means. Just as you would be
prevented from destroying hard-copy documents vital to a lawsuit, you are also
prevented from destroying electronic documents. Protect yourself and your
business by organizing your records, especially electronically-stored
information.
Business Insights is hosted by the Law Firm of Kumar, Prabhu, Patel & Banerjee, LLC.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
Enjoyed reading Khabar magazine? Subscribe to Khabar and get a full digital copy of this Indian-American community magazine.
