by Roberto Neuberger
If incorporating was your first step to a new and safe way to do business, compliance with the law is the easiest way to keep you safe from any liability associated with they way you manage your company. Let’s talk about this important topic.
Failure to follow corporate formalities may expose corporate officers, directors and shareholders to personal liability. Maintaining good records, including corporate minutes, on a timely basis goes a long way toward maintaining the limited liability benefit of a corporation.
If incorporating was your first step to a new and safe way to do business, compliance with the law is the easiest way to keep you safe from any liability associated with they way you manage your company.
There are many reasons to pay attention to the formalities associated with running a corporation: Business Corporation laws require that articles of incorporation and bylaws be filed. In addition, other events must be recorded in the company’s record books.
Articles of incorporation and bylaws serve as a contract between the corporation and its shareholders, obligating the corporation to act in accordance with them.
Directors and officers owe the corporation and shareholders a fiduciary duty to use good faith, exercise due care, and act in the best interest of the corporation. Majority shareholders must act in good faith, in a manner not calculated to oppress the rights of minority shareholders.
Corporate formality must be respected and observed to preserve the integrity of the corporation; as well as to shield officers, directors, and shareholders or related businesses from personal liability.
Don’t think that due to the fact that you could be the only person holding all the positions of a corporation you are safe from keeping your company in compliance. Small companies also have duties with State Agencies, providers and even customers.
Why Are Minutes So Important
It’s the law. There is nothing clearer than that. Minutes are legal records that serve to document actions and support business decisions, made by the principals of the business throughout the year. Minutes help you to separate your own affairs from the company’s actions. It is the way to protect you from liability.
During an IRS audit a privately held company may be required to produce the minutes of the company. If they do not, or can not give the minutes to the IRS agent, the problems stand as found. There is no negotiation with the IRS.
State law requires corporations to prepare annual minutes and in many cases; failure to do so has contributed to piercing of the company veil resulting in exposure to the principals.
As mentioned, without current and complete minutes, corporate players could be held personally liable for the actions of the corporation.
Your legal protection could be in jeopardy if a creditor successfully pierces the corporate veil due to the corporation’s failure to keep minutes.
Good recordkeeping habits and paying attention to detail are necessary for any successful business. Now you know it.
* Robert Neuberger is founder and President of Active Filings LLC