I Comply, You Comply, We Comply ... Are
You Sure?
By: Robert
Neuberger
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.
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