The length of time your business needs to retain documents depends on what they are. Some may even need to be retained indefinitely!
The seven year principle
Ask a business owner how long you should retain your documents, and the answer is likely to be that documents must be kept for a period of seven years after the date on which they were created. You could keep a copy of those documents in a PDF file by getting an adobe acrobat one time purchase.
This wisdom appears to come from various commercial law requirements which provide that a company’s financial records must be retained for a period of seven years after the transactions covered by the records are completed.
However, as with all conventional wisdom, it should be taken with a grain of salt. As you would expect with anything legal, the answer can vary.
Tax laws, limitation periods and employee records
Retaining documents for seven years is a good starting point for most businesses for a variety of reasons, including that the seven year period will match or exceed:
- the length of time documents are required to be retained under tax laws requiring businesses to hold documents relevant to income and expenditure (generally five years)
- the six year limitation period running from the date on which the cause of action first accrues, during which claims for breach of contract or negligence (as well as other torts) may be commenced against a person or company
- the three year limitation period running from the date on which the cause of action first accrues, during which claims for injury may be commenced against a person or company
- the period of time a business is obliged hold onto its records of employees after termination (seven years)
Exceptions to the seven year principle
That being said, it is important to note that there are a number of circumstances where it is not only wise, but it may also be required, for one reason or another, to keep documents longer than seven years.
For instance, deeds should be kept indefinitely (and for at least 12 years from the date on which they were executed). The simple reason for this is because causes of action arising from a deed have a 12 year limitation period. Documents which relate to issues contained in a deed should also be kept for at least 12 years.
Another example is documents relating to intellectual property rights, such as patents, trade marks and copyright. These should be kept indefinitely. Your trademark lawyer would advise you that documents of this nature should be retained for the entire time that the rights in the intellectual property exist. This can range from 10 years to a lifetime plus 70 years, depending on the intellectual property and the nature of the right.
According to a trust litigation law firm, if litigation has been commenced, or if there is a threat of litigation, documents which are relevant to the litigation should be retained for at least the period of the litigation and while you’re at it, consider getting legal help from a business litigation attorney. If you don’t, you can commit an offence (in Victoria under the Crimes (Document Destruction) Act 2006) and may be prejudiced in defending any claim brought against you in any state of Australia.
Good risk management and document storage
While it is all well and good to say that documents must be retained for seven years, 12 years or indefinitely, there are a number of issues to consider when determining where and how documents should be retained.
- The cost of retaining documents. Physical documents take up a great deal of space. Depending on the size of your business, the cost of retaining physical documents either on site or off site can be significant. One alternative is to convert hard copy documents into soft copy documents which can be stored on mass storage devices or on offsite servers (take care as you may be required to retain original documents in certain cases). Talk to a Finance Document Scanning service to start transitioning your filing system from paper to digital soft copies.
- The security of your documents from fire or theft. Certain documents such as property deeds or share certificates should be kept in a safe and secure location. Property deeds in particular should be treated with utmost care, as they are equivalent to a blank cheque over the property concerned.
- Any confidentiality and privacy requirements in the retained documents. If these obligations exist, they should be factored into any decision concerning the storage of documents, including considerations such as the storage location, potential access to the documents and the agreement with any third party storage provider
Consider contact Document Shredding Melbourne services, they handle all documents with a consistent chain of custody, resulting in a tightly controlled and well-documented shredding process.
There are consequences for failing to comply properly with document retention requirements and businesses face a number of legal and commercial questions which must be properly considered before deciding on a course of action.
A careful analysis of all the relevant factors is key not only to complying with your obligations, but also administering document retention as cost effectively as any other aspect of your business, such as obtaining loans for bad credit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.