Holding corporate meetings, writing corporate minutes and recording corporate resolutions is perhaps the most neglected duty by small business owners and operators. As a company director, officer, or shareholder it is your obligation to see to it that accurate and complete minutes are kept. In most states, it is also the law.
Why? Because minutes are vital to "corporate governance", part of the nature and essential operation of a corporation or other "artificial" business entity. Negligence will be your corporate doom when the "big one" comes: lawsuit, divorce, bankruptcy, judgment, lien, or God forbid, a revenuer's notice of examination.
You formed your corporation or limited liability company (LLC) to enjoy the benefits:
Limited personal liability;
Income tax advantages;
Personal and financial privacy;
Asset protection;
Separate legal existence;
Compartmentalization of your assets and liabilities; and
Bullet-proofing your affairs
When you fail to keep current your corporate minutes, you put all those benefits at risk for loss.
Piercing the Corporate Veil
Your closely held small business corporation, limited liability company (LLC), limited partnership (LP) or other business organization is bound to follow corporate formalities just as the big companies and firms. Courts - and the IRS - are crystal clear on this subject: If you neglect to treat your company as a separate legal entity, they will too. They will set it aside and impute personal liability to you and disallow tax deductions. They use terms like "alter ego", "nominee", "self dealing", and "failure to observe corporate formalities" to do just that.
Litigators know this. They also assume you neglect the details of good corporate governance, like holding meetings, adopting resolutions and recording these events in corporate minutes. They know most people are ignorant, intimidated, or just too busy to tend to the formalities. It is the easiest thing for them to prove, so that's exactly what they focus on when they launch their attack on you and your company. Among the first salvos launched by counsel for the plaintiff, or the Revenue Agent: A subpoena duces tecum, or summons, for copies of your formal corporate minutes and records. That's the way it works. You'd better have them in good order. Or else, YOU LOSE.
When you filed your corporate entity with the state, the state created it with separate legal existence, a personality of its own, and limited liability. But after that, your actions can jeopardize that separate legal status.
You may be the corporation's sole officer, sole director, and sole stockholder. Still, you must observe corporate formalities; hold meetings; formally adopt resolutions; approve an action, major sale or purchase; call for elections and vote. This helps establish that you operate your company at an arm's length and respect its separate legal existence. These vital acts can help persuade courts, tax agencies and other authorities to likewise give it separate legal recognition.
When your corporate veil is pierced, you lose your corporate shield. Once you and your company are merged, you lose tax benefits and become personally liable for everything: debts, judgments, liens; and additional taxes with the fines, penalties and interest they carry.
The best evidence of good corporate governance is found in your company's minute book.
Organizational and Annual Meetings
Your company will take some effort to operate and properly maintain. The validity or "legality" (for corporate purposes) of your actions and business conducted at your corporate meetings generally is governed by the law where your company was formed or registered, the company articles or charter, and its bylaws, operating agreement or other governing instruments.
As soon as practicable after filing your articles of incorporation or other formation document, hold your organizational meeting(s). At the meeting(s) you would normally:
Elect the directors;
Adopt the bylaws or operating agreement;
Adopt a form of share certificate or other ownership evidence;
Accept offers to purchase or acquire the stock or ownership interest in the company;
Authorize the issuance of beneficial ownership interest (i.e. shares of stock, membership interest, partnership interest, etc.);
Authorize bank accounts and account signatories;
Elect the officers, managers, etc. as appropriate; and
Adopt appropriate resolutions as necessary.
You may have other organizational requirements as mandated by your state law, or need to make elections pertaining to tax matters, or make other official management and investment decisions.
Then, each year hold your annual meeting of the shareholders, and the annual meeting of the directors, to attend to your annual corporate meeting requirements. Your bylaws or operating agreement should specify the requirements for these meetings. You may need to hold other regular or special meetings periodically throughout the year.
With a little thought and some good help, you could perhaps automate the process of holding meetings, adopting resolutions and recording minutes. 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. You can streamline your corporation's business meetings and formal record keeping methods. Often times you can attend to such formalities by written unanimous consent of the persons required to meet. In that case, your meeting may be on paper. You may also have the option of holding meetings electronically, by telephone, video conferencing, video chatting, or other digital means that can be documented.
Get this point: If, under your corporate charter and bylaws, you have the delegated authority and duty to call and preside over corporate meetings, you must familiarize yourself with the basic rules and principles that govern the legality of those proceedings, and you must keep minutes of the proceedings.
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