As a company officer or director you may be obligated to call, notice and hold certain formal meetings. Especially if you are a corporate Secretary or President, it may very well be a duty. Look at your corporation’s bylaws to find the requirements for annual, regular and special meetings of the shareholders and of the directors.
For a Nevada corporation, you can review the statutory provisions beginning with Nevada Revised Statutes 78.310 through NRS §375.
For a Florida corporation, take a look at Florida Statutes §607.701 for annual shareholder meeting requirements; and FS §607.702 for special shareholder meetings. Notice the phrase “shall hold” regarding the subject meeting? That language is not elective, but mandatory.
Florida corporation directors meetings are generally covered in FS §607.0820, which provides for meetings of the board of directors to be called by the chairman of the board or president. In many cases, the corporate president is also the chairman of the board. Again, the corporation’s bylaws will address director meetings requirements also.
Minutes of the Meetings
The official record of what transpired at a meeting of shareholders (a.k.a. stockholders) or a meeting of the board of directors is usually kept in the form of the meeting minutes. The minutes recount important “corporate governance” actions like adopting resolutions, nominating and electing directors and officers, and amending the bylaws.
Meetings and minutes are a vital part of the nature and essential operation of a corporation or other “artificial” business entity. Don’t procrastinate, neglect or ignore their importance. If you do, you do so at your own peril. If – no, when – a challenge arises, such as a lawsuit, tax audit, divorce, bankruptcy, judgment, lien, seizure, etc. you will find out just how important these formalities. The minutes greatly help substantiate that the corporation is operated correctly.
Holding required meetings, and recording minutes of the meetings, is perhaps the most neglected aspect of corporate governance that so many small business owners and operators are guilty of.
Remember one of the primary reasons you formed your company in the first place: benefits. these included:
- your personal limited liability for company debts and obligations
- the company’s limited liability for your personal debts and obligations
- income tax benefits and features
- personal and financial privacy
- asset protection
- separate legal existence
- compartmentalization of personal and company assets and liabilities
- bullet-proofing your affairs
So, when you neglect to hold corporate meetings and keep corporate minutes in the records book, you are unnecessarily putting everything at risk for loss.
In the Beginning
Let’s review.
You started out simple enough. You came up with a company name that was available for filing with the state for your new company. The incorporation process was fairly simple, and not very expensive. You filed the articles of incorporation yourself, or you might have hired a service, lawyer, accountant or other service provider to do it for you. Piece of cake, right?
Your new “corporate kit” 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 binder 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 of the corporate kit contained fill-in-the-blank minutes, blank stock certificates, a 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 about 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 could lose all the benefits of incorporating your business. You are vulnerable. Your corporate veil can be pierced.
Piercing Your 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 if – no, when – you or your company are legally challenged. Yes, it is when you are challenged.
In the good ol’ USA, if you are financially successful, if you have assets, you are a target for litigation. Your enormous nightmare might take the form of a judgment creditor’s lien, a divorce decree, a bankruptcy filing, or worse: an IRS income tax audit.
You know, of course, that once there is an income tax audit, the revenuer will notify your state income tax authorities of their determination. If that determination includes that you and/or your company owes additional income taxes . . . and penalties . . . and fines, you can expect to find a notice of examination in your mail box from your friendly state income taxing authority
Californians: think California Franchise Tax Board. Another state income tax examination for you AND your companies – each of them!
Very scary, indeed. When you remember to think about it, that sinking feeling in your gut amplifies as time goes on.
Oh well, you can work on solving that problem later (procrastinate). Go ahead, put away the corporate book (ignore it). Why do you need minutes anyway? Your company is a small, one- or two-person firm. Surely you don’t need to be so formal, do you (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, right? Surely, if you absolutely positively must have minutes, you can get your lawyer to do them for you (at the lawyer’s billable-hour rates).
Or maybe your CPA prepares corporate minutes with some autopilot software he runs. He certainly doesn’t neglect to do this for you, right (ass/u/me)?
I know, perhaps you’ll never need to produce any corporate minutes for any reason. They just die in the corporate minute book archive, right?
You don’t have any disgruntled employees. Who does?
Certainly you don’t knowingly misuse the corporation’s funds. You don’t borrow or use corporate funds in any manner that should be documented in corporate minutes, you know, 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? Facetious, right?
Besides, you may be the corporation’s sole officer, sole director, and sole stockholder. Do 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 New York Stock Exchange?
Don’t be naive.
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.
It is vitally important for small, closely held companies to hold annual, regular and special meetings, too, when required or appropriate. Adopting resolutions, holding formal elections, and recording corporate minutes is part of this process. This helps establish a corporation’s separate legal existence so that courts, tax agencies and other authorities can give it separate legal recognition as well.
Remember, if you don’t treat your corporation as a separate legal entity by observing good corporate governance and attending to the required formalities, the courts and tax agencies won’t either!
There are ways to 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 prevail. The validity or “legality” (for corporate purposes) of your corporate actions and the business conducted at your corporate meetings generally is governed by state law where your company was formed or registered, and by the company articles or charter, 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 become familiar with the basic rules and principles that govern the legality of those proceedings. And, you MUST keep corporate minutes.