updated 4/26/2006 7:32:40 PM ET 2006-04-26T23:32:40

Accumulating records and documents is an inevitable part of running a small business. Paperwork turns into stacks of folders and eventually, filing cabinets that take up increasing amounts of space.

If you have the urge to start throwing out your company's old records, be aware that this is a task to be done very judiciously, or you could find yourself without crucial papers when unexpected litigation or tax questions come up. Better yet, you might want to think about preserving some of your old records electronically, saving space but still holding on to the documents you need.

Before you start a big purge, you also need to be aware of the laws in your state, such as statutes of limitation on contracts, or regulations that require members of certain professions to keep some documents for a specified amount of time. You should also be aware of any federal laws, which of course include tax laws, that apply to your business.

"There are really no hard and fast rules, depending on the state of the client, depending on the industry they're in or the governing body that might be looking over them" said Larry Blum, a certified public accountant with Rachlin Cohen & Holtz LLP in Miami.

The safest route is to consult with an attorney or a CPA, who can help you sort through the kinds of documents you have and how they should be treated. Even safer than that: Take a conservative approach, and if there's any question, don't throw the records away.

"Err on the side of an abundance of caution, because it's better to be safe than sorry," said Dorothy Bass Burch, a partner in the law firm Ragsdale Liggett in Raleigh, N.C.

Burch said there are some papers that you should never throw away. For example, documents related to buying or selling property, or receiving property through a gift or inheritance. Let's say a relative left you rental property 20 or 30 years ago and now want to sell it; you'll need to know the cost basis for the property in order to determine your tax liability.

You should also hold on to marriage and divorce records. Burch recalled several cases of business owners who got tax bills for a former spouse, and needed to prove to the IRS that the marriage had ended years ago. Without that proof, their businesses could have been in jeopardy.

It's true in this last example that copies of the documents could be gotten from a court or county clerk. But why have to go through the extra hassle, especially when it can take weeks or longer to retrieve very old records?

Any documents or records related to corporate governance should never be tossed out. For example, Burch said, "shareholders' minutes need to be kept indefinitely as evidence of whether an action was authorized by the company."

The same goes for any papers related to the founding of a company or corporation, such as the articles of incorporation or the bylaws. Canceled stock certificates should also be kept on hand indefinitely.

Blum's firm suggests keeping a variety of legal documents permanently: contracts, deeds, mortgages, bills of sale, trademarks, patents, and copyrights. Also keep financial records such as ledgers, pension and profit sharing information and any checks or invoices related to an important transaction. The same goes for anything related to property, such as insurance records, plans and blueprints. Tax returns should also be retained indefinitely.

There are varying theories on how long you should keep papers like sales records, payroll summaries, customer invoices, general correspondence and bank statements. Blum's firm advises anywhere from four to seven years, depending on the record, but again, to be on the safe side, consider holding onto them longer, especially with employee records.

Or, electronically archive them.

Technology gives business owners the option of keeping their records without having them take up valuable real estate. Burch says it's now so easy to store your documents electronically, "it's almost foolhardy not to."

You can do it yourself using scanners and high-tech storage devices such as CD-ROMs. Going forward, you can buy software that will store your documents going forward as you create them.

A word of caution from Blum: "Sometimes when you scan things in, there can be a question of authenticity." So before you store something and tear up the originals, be sure a court or other government agency would accept scanned copies.

Of course, this is a project that would take you away from your day-to-day business, and you might want to hire someone to do it. You can sign up with a document management service, which can scan your existing records and provide for ongoing storage of the ones you're going to be creating; that's an added expense that you need to weigh.

Whatever route you choose, storing your documents electronically will give you some added protection should a storm or other disaster strike your premises. As in the case of backing up your financial data and customer records, it's best to have your stored documents duplicated in an electronic vault many, many miles away.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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