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Laws Related to Retaining Documents
Most countries have Companies Acts, Codes, and tax regulations that stipulate how long to retain commercial, accounting, and tax documents. Countries such as UK require retaining such documents for six years, whereas Austria and Germany require retaining certain documents up to 30 years.
In the United States, most states adopt the Uniform Commercial Code that places a four-year limit for claims under a contract of sale, a six-year limit for claims related to contractual obligations other than sales, 15 years' limit for claims regarding title or possession of real property, a one to three-year limit for torts involving wrongful death, bodily injury or damage to personal property, and a ten-year limit for claims related to real property design and construction defects running from completion of the work. The relevant documents therefore require retention for the corresponding durations. Documents concerning disputes may not be destroyed regardless of a time limit.
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The retaining period stipulations for various other types of documents in the US are:
- Federal Tax Records: four years after filing and paying the tax.
- Audit records of public corporations: seven years.
- Documents submitted to the Securities and Exchange Commission by public companies: five years.
- Bank Records: Retain checks related to taxes, business expenses, and mortgage payments permanently. Shred checks that have no long-term importance after one year.
- Credit card receipts and statements: Retain original receipts until receipt of monthly statements. Keep statements for seven years if such statements include tax related information.
- Bills: Retain high-value bills of machinery, vehicles, computers and others permanently, to claim depreciation and insurance. Retain non-important bills for one year.
- Reports in compliance with Toxic Substances Control Act: three years.
- Environmental reports for chemical manufacturers: five years.
- Allegations by employees of harm caused by toxic chemicals: 30 years.
- Employee medical records: duration of the employee’s term plus 30 years.
- Payroll records and documents related to compliance with Fair Labor Standards Act: three years.
- Paycheck stubs: Retain paycheck stubs until receipt of annual W-2 form. Retain W-2 stubs along with income tax records.
- Documents that verify accuracy of information regarding employee benefit plans reported under the Employee Retirement Income Security Act: six years.
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When Are Originals Required?
Stipulations regarding retention of documents rarely distinguish between paper and electronic records, or originals and copies. Most countries, however, have other rules that require retaining some documents such as board minutes, documents under seal, and documents under court proceedings in their original form. Some countries recognize electronic or scanned versions as legal documents.
The US Federal Rule of Evidence requires presenting original documents during the course of litigation whenever possible. Many states have adopted the Uniform Photographic Copies of Business and Public Records as Evidence Act that gives microfilm copies the same legal status as original records, but the law would still require original documents when authenticity might be an issue. Duplicate records such as photocopies do not attain the legal status of originals or microfilm.
As a rule of thumb, companies need to preserve the following documents in the original:
- Employment contracts and contracts for personal services.
- Contracts or agreements related to major transactions.
- Opinions of counsel.
- Correspondence having a clear effect on the company’s legal rights or obligations.
- Promissory notes.
- Title deeds and lease.
- Court orders affecting title.
- Probate proceedings.
For other documents, when rules on retaining periods do not distinguish between hard copy, microfilm and records in other formats, originals may be destroyed after imaging and storing them electronically. The company, however, needs to ensure reasonable controls to demonstrate the integrity and authenticity of such electronic documents.
Most original documents such as title deeds and insurance policies require permanent or long-term storage. Make sure to ensure proper safeguards such as fire and water proof lockers when preserving such documents. A good method of storing electronic records is WORM (write once, read many) format.
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The Sarbanes-Oxley Act (SOX) requires companies to track document usage and produce original documents with the information on people who have accessed such documents. Section 404 of the act requires companies to prepare an annual report regarding internal document controls and operating procedures, and Section 802 imposes criminal penalties for failure to comply with record-retention policies.
The SOX Act is fallout of the 2002 case involving Arthur Andersen LLP, when the court found the company guilty of obstructing justice by destroying relevant documents to impede investigation by the SEC into the affairs of its client, Enron.
Most companies have instituted a document retention and control policy to comply with the SOX Act. Even otherwise, a good policy guides retention of original documents in factors such as the type of documents to retain in original format, the type of documents to store in microfilm or electronic format, the duration of storage, and how to destruct originals when not needed. The Patents Office, for instance, stores all patent records in their original form for five years, after which it adopts a “scan and shred" policy. The scan nevertheless is of high quality and accuracy that matches the original.
When laws and policies are not applicable, consider the implications or consequences of throwing out a document altogether, or scanning the document and then shredding away the document.
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- "Document Retention: The law and practice around the world." http://crossborder.practicallaw.com/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1247477789010&ssbinary=true. Retrieved July 09, 2011.
- "How Long to Keep Financial Documents." http://www.bankrate.com/finance/personal-finance/how-long-to-keep-financial-records.aspx. Retrieved July 09, 2011.