Legal risks that companies often underestimate

Business legal risks rarely begin with a visible conflict. They frequently originate from outdated documents, contracts that no longer reflect operations, individuals signing without clearly verified authority, labor relationships treated as professional services, or intangible assets that the company uses without having properly protected them.

While the operation continues, these issues may seem secondary. The problem usually becomes evident when the company applies for financing, brings in an investor, faces an inspection, needs to terminate a business relationship, tries to collect a debt, or discovers that someone else is using its trademark.

Legal prevention does not mean indiscriminately reviewing every document or trying to eliminate every risk. It consists of identifying which situations can affect the continuity, assets, or the company's ability to execute its decisions and address them according to their importance.

What is a corporate legal risk?

A legal risk is a situation that can produce economic, operational, or reputational consequences due to the breach of an obligation, deficient documentation, or a lack of clarity regarding the company's rights and responsibilities.

Some risks stem directly from the law, such as certain labor, tax, or registration obligations. Others arise from contractual decisions: accepting excessive responsibilities, failing to regulate early termination, or allowing a supplier to retain rights over materials they developed for the company.

There are also risks that do not necessarily involve a breach, but do weaken the company's position. For example, providing a service without documenting its scope may not be illegal, but it makes it harder to prove what was contracted, when payment was due, and what would happen if the client defaulted.

In Guatemala, the operation of a company may involve, depending on the case, the Commercial Code, the Civil Code, the Labor Code, tax regulations, IGSS regulations, intellectual property legislation, and the specific regulations of its activity. The specific application depends on the facts, documents, structure, and sector of each company.

1. Keep the corporate structure outdated

A company can be commercially active and, at the same time, have deficiencies in its corporate documentation. These may include appointments that have not been renewed or registered, changes among partners that were not properly documented, incomplete corporate books, decisions made without the corresponding minutes, or registry information that no longer matches the company's reality.

Article 338 of the Commercial Code contemplates the registration of acts such as the appointment of administrators, managers, and certain powers of attorney, as well as their revocation or limitation. The Mercantile Registry, on the other hand, registers companies, legal representatives, commercial enterprises, and modifications related to these entities. Commercial Code, Decree 2-70 y General Mercantile Register of the Republic.

These deficiencies can create obstacles when the company needs to prove who can represent it, open or update a bank account, appear in a proceeding, formalize a transaction, or respond to a review by a potential investor.

The recommendation is not to produce minutes solely to fill files. The documentation must reflect actual decisions, respect the company's bylaws, and maintain consistency among the company's books, the Mercantile Registry, SAT, and other relevant institutions.

2. Not verifying who can commit the company

The fact that a person holds a management position does not necessarily mean they can enter into any contract on behalf of the company. Their powers may depend on the articles of incorporation, their appointment, a power of attorney, registered limitations, and, in some cases, corporate authorization for the specific transaction.

This risk is usually underestimated because, in practice, negotiations may be led by commercial managers, chief financial officers, or purchasing managers. However, before signing, it must be verified that the person has sufficient authority and that it is currently in effect.

The lack of verification can lead to disputes regarding the validity or scope of the obligation, delays in disbursements, rejection of procedures, or the need to subsequently ratify an action. It can also generate an internal problem if someone assumes a significant obligation without respecting the authorization levels established by the partners or the management body.

A signature policy should define, according to the company's structure:

• Who can sign each type of contract.
• What operations require additional approval.
• What are the economic limits.
• How representation is proven.
• Where are the signed versions kept.
• Who controls the expiration of appointments and mandates.

The purpose is not to bureaucratize the operation, but to prevent important decisions from depending on uncertain powers.

3. Use generic or outdated contracts

A contract can be signed and still be insufficient. This happens when a template that does not correspond to the transaction is copied, terms from another jurisdiction are used, or aspects that later prove to be essential are omitted.

Among the most frequent problems are an ambiguous service description, non-existent acceptance criteria, poorly defined prices or taxes, contradictory deadlines, the absence of termination rules, a lack of liability limits, and confidentiality clauses that do not correspond to the information actually shared.

Not all business contracts are subject to the same formalities. Therefore, it would be incorrect to state that every agreement must be documented in an identical manner. However, having a clear contract is usually an important measure to establish rights, obligations, and evidence of what was agreed.

Contract review must start with the business. A contract with a client does not distribute the same risks as a lease, a distribution agreement, a software license, or a relationship with a strategic supplier.

Before using a model, the company should ask itself whether the document adequately regulates:

• The purpose and scope of the relationship.
• The price, billing, and payment terms.
• The obligations and deliverables of each party.
• The ownership of materials, information, or developments.
• Confidentiality and permitted use of information.
• The validity, renewal, and termination.
• The consequences of non-compliance.
• The dispute resolution mechanism.

A longer contract is not necessarily a better contract. The important thing is that it responds to the transaction and allocates risks consciously.

4. Treat as a vendor someone who actually works as an employee

The name that the parties give to a document does not determine the nature of the relationship by itself. A person may issue invoices or have signed a professional services contract and, even so, elements may exist that require analyzing whether an employment relationship was established in practice.

Articles 18 and 19 of the Labor Code focus on the actual conditions under which services are rendered and establish that the employment relationship is perfected with the commencement of the work under the corresponding legal conditions. Likewise, fixed-term contracts constitute an exception when the activity is of a permanent or continuous nature. Labor Code, Decree 1441.

The evaluation may consider, among other aspects, ongoing direction, dependency, the form of remuneration, working hours, the workplace, integration into the organization, and the specific circumstances of the provision of services. No single element should be used as an automatic conclusion.

Misclassifying a relationship can lead to claims for benefits, social security contributions, severance payments, and other liabilities. The risk increases when the company uses service contracts to cover permanent positions or when the documentation says one thing, but daily operations show another.

The preventive measure consists of reviewing both the contract and the reality of the relationship.

5. Assuming that labor and IGSS obligations can wait

Small or growing businesses may postpone the organization of personnel files, contracts, time-and-attendance tracking, internal policies, disciplinary procedures, and termination documentation. This lack of organization makes it difficult to prove how a relationship developed when a disagreement arises.

It is also risky to assume that a company is exempt from IGSS solely based on its size or how it designates its collaborators. The official IGSS portal currently indicates that an employer who employs one or more workers must check their registration in the regime, without prejudice to applicable rules and exceptions. IGSS employer registration requirements.

The specific obligation must be verified in accordance with current regulations, the activity, the location, and the characteristics of the relationship. It should not be resolved through a general rule taken from outdated information.

A preventive labor audit must examine contracts, personnel files, payments, benefits, vacations, working hours, social security, and termination procedures. In addition, it must verify whether actual practices match the documents.

6. Neglecting tax and administrative information

A company can file tax returns and still keep outdated information with the SAT. This may include its tax address, establishments, economic activities, legal representatives, accountant, tax affiliations, or contact details.

The SAT states that taxpayers must annually update or ratify their registration data in the Unified Tax Registry after their anniversary. It also maintains specific procedures for FEL and other compliance systems, depending on the applicable regime. SAT Taxpayer Information y RTU data update.

Tax prevention does not fall solely on the lawyer. It requires coordination between management, the accountant, and legal counsel. The accountant can identify tax obligations and file returns, while the lawyer must review the consistency of operations, contracts, corporate structure, and representation powers.

Ignoring that coordination can lead to inconsistencies between what the company contracts, invoices, records in accounting, and reports to the authorities.

7. Using a brand or intangible asset without securing its protection

Many companies invest first in the name, logo, website, software, designs, photographs, or commercial materials and check ownership when the asset already has value.

The registration of a company, the availability of a domain name, and the use of a trade name do not automatically equate to the registration of a trademark. The Industrial Property Law regulates the protection of trademarks and other rights, and the Intellectual Property Registry is the competent administrative authority. Intellectual Property Registry Legislation y Trademarks Department.

In addition to registration, it must be examined who created each asset. If a designer, programmer, agency, or consultant produced materials for the company, the payment of their fees does not always resolve all aspects of ownership and use on its own. The contract should establish which rights are transferred or licensed, for what uses, in what territory, and for how long.

It is also advisable to identify confidential information, limit access to it, and establish clear obligations with employees, suppliers, and business partners. Protecting an intangible asset does not only consist of registering it; it also implies documenting its creation, ownership, and exploitation.

How to prioritize these risks?

Not all issues need to be resolved simultaneously. A corporate legal review should classify them according to their probability, impact, and urgency.

First, situations that could prevent the company from acting or that involve a current breach must be addressed: representation issues, labor or social security obligations, deadlines, requests from authorities, and tax contingencies.

Subsequently, risks affecting revenues and strategic relationships can be reviewed, such as customer contracts, leases, critical suppliers, financings, or shareholder agreements.

Finally, asset protection and future prevention must be structured: trademarks, intellectual property, confidentiality, signing policies, contractual models, and compliance schedules.

The result of a review should not be solely a list of deficiencies. It should produce a plan indicating what to correct, who is responsible, what documents are needed, and within what timeframe it is advisable to act.

Frequently Asked Questions

How often should a corporate legal review be conducted?

It depends on the company's activity and exposure. It may be advisable to perform it annually and also before making important decisions, such as receiving an investment, applying for financing, acquiring another company, expanding, hiring a significant number of employees, or entering into a strategic contract.

Does a small business also need a legal review?

Yes, although the scope must be proportional. Small companies can concentrate decisions, contracts, and knowledge in a few people, which increases the impact of deficient documentation or the absence of basic controls.

Does the accountant's review replace the legal review?

No. Both functions complement each other. The accountant mainly reviews financial, accounting, and tax aspects. The lawyer analyzes the legal structure, representation, contracts, labor relations, liabilities, and other legal risks.

Does having signed contracts mean the company is protected?

Not necessarily. The contract must correspond to the transaction, have been signed by persons with sufficient authority, and regulate the relevant risks. It must also be properly applied and administered after its signature.

Do all identified risks require immediate correction?

No. They must be classified according to urgency, impact, and probability. The company can establish a regularization plan that addresses first the issues that affect its ability to operate, fulfill obligations, or protect its assets.

Call to action

The most costly legal risks are not always the most obvious ones. A preventive review allows for identifying inconsistencies, establishing priorities, and correcting issues before they interfere with an important operation, investment, or business relationship.