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All about Retaining Business Records

By Angelina M. Kim Email By Angelina M. Kim
January 2014
All about Retaining Business Records

Companies and business owners often struggle withhow 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 thirdparty. 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, butif 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 assecurities, real estate and banking professionals should look to the guidance issued by their regulatory agencies.

Some general rules on length of retention areprovided below (may vary depending on the state your company is located):

Permanent/Do not Destroy- CorporateRecords, Stockholder/Member Records, Cash Records, Financial Statements, TaxReturns, 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 otherTax/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 them selves. 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 ordeleted. 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. Angelina M. Kim is a litigation associate at the firm. She specializes in areas such as hospitality, technology, and banking.]

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.

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