Posted on: October 18th, 2014
I often shudder when I ask a new business client if their corporate minutes are up to date and they look at me with a blank stare and ask, “What are minutes?” This usually occurs when the person who set up the corporation initially didn’t explain the corporate formalities that must be followed in order to maintain the corporation as a separate entity. Having current and complete minutes is one of those corporate formalities.
I understand that business owners are busy people and they focus on what they do best – running the business. The good news is minutes are quick and easy to prepare and usually do not require the assistance of an attorney. You do not need to document routine business decisions, such as ordering 15 reams of paper or buying pizza for the team. Only the important legal, tax or financial decisions that require board or shareholder approval should be documented in the form of corporate minutes. What’s considered important? Here are a few examples:
Holding the annual meeting of directors and shareholders (you are having those, right?)
Issuing stock
Leasing or purchasing real estate
Authorizing a line of credit from a lender
Declaring and paying dividends and distributions
Not abiding corporate formalities, such as having current and complete minutes, could hold the shareholders, officers and/or directors personally liable for the actions of the corporation. Ultimately putting the legal protection you thought you had in forming the corporation at risk.