For the past two years, when I sign up a new client company for our services, I always inquire about the state of your corporate minutes book, or your member meeting book for an LLC. In an astonishing 30-40% of the cases, most clients don’t keep a current book and some have no idea why I am asking.
Here is why I am asking.
Business entities must follow certain legal formalities in order to remain in effect. Courts, while not eager to invalidate a corporation status or an LLC, will do so when it becomes apparent to them that the entity is nothing more than an alter-ego for the organizer. That means, a sort of “shell” that keeps no records, takes no actions, and is only in existence as an extra layer of personal liability protection.
Most good attorneys will look at corporate status right away, if they represent a client who is suing an entity. Piercing the corporate veil (that s what this practice is commonly called) creates great fear in the mind of the defendant and moves them to settlement faster than they might have otherwise had their entity been robust in its creation and its maintenance.
Here is how to how to create and keep a robust liability shield in place.
A corporation’s Articles of Incorporation is a formal legal document that contains important information about the corporation, such as the corporate name, address of the main office, and—in some states—the names of the directors and the name and address of one person who will be a contact for the public. In some states these incorporation articles are known as a “Charter” or “Certificate of Incorporation.”
Your corporation’s bylaws are an internal document that outlines how the corporation will govern itself and manage its day-to-day activities. In your bylaws, you can address the frequency of board of directors’ meetings, the number and name of corporate officers (i.e. President, Secretary, etc.), personnel policies, etc. Though not usually submitted to the state, bylaws are important in proving the legitimacy of the corporation.
The board of directors typically make important decisions at the initial board of directors meeting. Some of the decisions and actions that usually take place at the initial board of directors meeting include: Selection of officers, Adoption of bylaws, Stock authorization and issuance, and Adoption of the official stock form and seal.
The board of directors is the decision-making body of a corporation. Directors make the financial decisions and determine major corporate policies and procedures. They’re the ones who choose the officers, approve the issuance of stock, and set the salaries. The owner(s) of the corporation can appoint themselves or other people to the board of directors. Most states require at least one director on the board no matter how many owners there are.
After completing all the necessary steps to structure your business as a corporate entity, you’ll comply with the other requirements of running a business in your state and locality. You’ll need to obtain a business license and an employment identification number (EIN), which is your federal tax number, before doing any business. You will also need an EIN to open a business bank account. There may also be other permits or licenses that may be required could include a seller’s permit or a zoning permit depending on your type of business. Check the federal, state, and local requirements to find out what your business will need. I suggest including copies of your NMLS Licenses in your corporate records.
Corporate Minutes: Keeping corporate minutes doesn’t mean recording every meeting, but rather recording meetings that involve key decisions or key company activities. Here are examples. Annual director and shareholder meetings, Employee hires and compensation plan changes, new company bank accounts, loans, company credit cards, etc. The CFPB wants to see evidence that the entity required and approved a formal compliance program. The minutes can be simple – keep the language straightforward and professional. And it is best to use the same type of format each time you convene a meeting.
AT A MINIMUM, THIS IS WHAT SHOULD PRESENTLY BE IN YOUR CORPORATE RECORDS BOOK. LLC Member Minutes are similar.
- Articles of Incorporation
- Organizational meeting minutes where Officers and Directors were elected
- Copies of Annual Meeting reports with your state.
- Copies of your Annual Shareholder Meetings where you ratify in reverse the prior actions of your Board.
- Copies of any Special Minutes necessary for those “special situations” that occur. Such as approving a formal Compliance Program.
If you follow these guidelines your corporation or LLC should survive any challenge, and you will usually not be subjected to personal liability as if you had no corporate veil.
We provide this service as part of our program. Call us at (800) 656-4584 if you want us to assemble your records for you.
Nelson A. Locke, Esq.