|
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 articles of
incorporation and bylaws and specify other things that
must occur.
Articles of incorporation
and bylaws form a contract between the corporation and its
shareholders, obligating the corporation to act in
accordance with the articles and bylaws.
Directors and officers owe
the corporation and shareholders a fiduciary duty to use
good faith, exercise due care, and act in the best
interests 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 and to shield officers, directors, and
shareholders or related businesses from personal
liability.
Don’t think that for the
fact that you can be the only person holding all the
positions of a corporation you are out of 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. Nothing
more clear than that. Minutes are legal records that
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.
Protect Yourself
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.
|
About
The Author
Robert
Neuberger is the President & CEO of
Active Filings LLC, a national
incorporation and corporate services
company (www.activefilings.com) |
|
|
