Thursday, August 04, 2011

Do I Really Need to Do My Corporate Minutes?

I often see business clients to assist them with important business decisions, draft a contract, or talk about succession planning and when I ask what seems to be an innocent question of whether they are current with their corporate minutes, I receive an embarrassed "no." Some people might have forgotten this year, some may not have ever known this was needed, and other may have been meaning to get around to them since 1989.

As you are probably aware there are many advantages to incorporating your business. Corporation owners enjoy the benefit of limited liability protection and generally are not responsible for the debts of the business. In short, creditors are not able to come after personal property such as your home or family car to satisfy business debts. Additionally, corporations may gain tax advantages that are not available to other business entities. These advantages can include write offs of health insurance premiums and savings on self-employment taxes. Incorporating bolsters the credibility of any business increasing investment and loan opportunities for the business. Retirement funds and qualified plans, such as 401(k)’s, can be more readily established through corporations than through other business entities.

All of these benefits do not come without performing the proper formalities of running a business in order to maintain corporate status. One important formality involves keeping a record of all corporate actions - the often forgotten corporate minutes. California Corporations Code Section 600 requires that at least an annual Board of Directors Meeting and Shareholders Meeting is held and minutes are recorded and signed. While complying with these formalities may be require some extra time and expense, it is required in order to enjoy the benefits awarded.

Failure to comply with corporate formalities, such as neglecting annual meetings, can result in the loss of your personal liability protection rendering you personally liable for your corporation’s bills and debts. Observing corporate formalities continues to protect the investment you have made in your business. Feel free to contact me if you have questions or need help getting caught up with your documentation.