This is the corporate minutes help hotline for small business owners and operators like you. Holding corporate meetings, writing minutes and recording corporate resolutions is perhaps the most neglected duty of all small business owners and operators. Still, as a company officer, director or shareholder you are obligated to regularly keep accurate and complete minutes.
Why? Because minutes are vital to "corporate governance", part of the nature and essential operation of a corporation or other "artificial" business entity. Your procrastination, neglect, or ignorance will be your corporate and economic doom if/when the "big one" comes – lawsuit, tax audit, divorce, bankruptcy, judgment, lien, seizure....
Remember why you formed your company in the first place; you wanted the alluring benefits:
• limited personal liability • income tax advantages • personal and financial privacy • asset protection • separate legal existence • compartmentalization of your assets and liabilities • bullet-proofing your affairs
So, when you neglect keeping current your corporate minutes, you put everything at risk for loss. Or worse.
STARTING OUT
To put this discussion in context, let's review.
It started out simple enough. All you had to do was come up with a catchy name that was available to use for you new company. That was the hard part. The incorporation process was quite easy, and not very expensive. You filed the articles of incorporation yourself or hired a service or your lawyer, accountant or other advisor to do it for you. Piece of cake, right?
When your new "corporate kit" arrived it was quite impressive. The "corporate book" had your company name on its spine, maybe even embossed in gold leaf letters on its face, and fit neatly into its own sleeve. Sweet.
You perused the attractive book with its sturdy tabbed section dividers. One section housed a copy of your filed articles of incorporation and perhaps a pretty color certificate with the Secretary of State's seal on it – all very official.
Other sections contained fill-in-the-blank minutes, blank stock certificates, blank stock transfer ledger, and several other documents and forms that you were not familiar with. There may have been instructions explaining the "easy" process for you to complete the organizational start-up forms provided.
That's where things got a little complicated. Do you understand what to do? You've heard this is a huge part of properly running your company – "corporate formalities" – and it's something you MUST attend to regularly. Corporate protocol: Hold your corporate meetings; adopt resolutions; record the minutes. Or else. Or else what?
Or else you will lose your incorporation benefits. You are vulnerable. Your corporate veil can be pierced.
PIERCING THE CORPORATE VEIL
What does that mean, pierce the corporate veil? It means you lose your corporate shield, its separate legal existence that is separate from you, your assets, and your liabilities. You and your company can be merged when you or your company are challenged. Yes, it is "when" you are challenged; if you are financially successful, if you have assets, and if you live in the United States, you are a target for litigation. Your enormous nightmare will take the form of a judgment creditor's lien, a divorce decree, a bankruptcy judge, or worse: an IRS audit or California Franchise Tax Board examination for you AND your companies – each of them!
Very scary, indeed. Your concern turns into anxiety. When you remember to think about it, that sinking feeling in your stomach amplifies as time goes by. Oh well, you can work on solving that problem later (procrastinate), so you put away the corporate book (ignore it). Why do you need minutes anyway (denial)? After all, the bank opened the new corporation's checking account using a copy of your articles of incorporation, tax identification number (EIN), and a resolution that they provide to you (rationalization).
How important can corporate minutes be? Surely, if you absolutely positively must have minutes, you can get your lawyer to do them for you (albeit at lawyer billable-hours rates, no doubt). Or maybe your CPA prepares corporate minutes with some autopilot software – your CPA wouldn't neglect this like you do, right (ass/u/me)? Perhaps you'll never need to produce any corporate minutes anyhow. They just die in the corporate minute book archive, right? You don't have any disgruntled employees (dementia). Certainly you don't knowingly misuse the corporation's funds or borrow money from it that should be documented in corporate minutes...in case of a tax audit. You know lawsuits happen and are absolutely horrific, but who would sue you or your company? Who would try to screw you just to get a money settlement (obtuse)?
Besides, you may be the corporation's sole officer, sole director, and sole stockholder. Would you hold meetings with yourself? Would you need to discuss adopting a resolution, approve an action, or call for a vote, with yourself? Isn't that only for large publicly traded companies on the stock exchange (faulty reasoning)?
CORPORATE FORMALITIES
When a regular "for profit" corporation (or other business entity) is organized, it will usually hold at least two kinds of meetings: 1) shareholder meetings which are also called corporate meetings; and 2) directors' meetings. Large corporations especially will hold regular committee meetings, such as meetings of the finance, executive or investment committees. However, it is vitally important for small, closely held companies to hold certain meetings, adopting resolutions, and keep corporate minutes. This helps establish its corporate legal existence so that courts, tax agencies and other authorities can give it separate legal recognition.
You can simplify, streamline and systematize your corporation's business meetings and formal record keeping methods. The "form" that you use is not your most important concern. It is instead the "substance" of your meetings, minutes and resolutions that will carry the day. The validity or "legality" (for corporate purposes) of your actions and business conducted at your corporate meetings generally is governed by state law where your company was formed or registered, the company articles or charter, and its bylaws, operating agreement or other governing instruments.
Get this point: If you have the delegated authority and duty to call and preside over meetings – and to keep the official corporate minutes of formal proceeding – you MUST familiarize yourself with the basic rules and principles that govern the legality of those proceedings, and you MUST keep corporate minutes.
For a thorough lesson in conducting corporate meetings and writing corporate minutes and resolutions, please subscribe to our FREE 7-part email series entitled, "Corporate Meeting Minutes: The Complete eCourse" using the form below.
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