“Ask Your Attorney” Column
About Running Your Corporation As A Corporation
Dear Counselor: My three siblings and I have taken over the business our parents had run for 20 years. It is a corporation, and I saw something called a “Minute Book” on the shelf. It had papers in it, and I just wondered if this was something that we needed to worry about?
Dear Client: When it comes to running your corporation, formalities DO matter! If you don’t follow the rules, you run the risk of losing the “corporate shield” against personal responsibility for corporate liabilities — which is one of the most important reasons the corporation is formed in the first place. That means having that Minute Book, and keeping it up to date. Corporations are generally required under state law to hold meetings, elect officers and directors, and follow the operating rules, called Bylaws. The liability shield is only one reason to keep up with the formalities. IRS auditors typically look at the Minute Book in the course of an audit, searching for proper documentation of corporate business activities, payment of bonuses or dividends, and things like that. So, don’t delay or ignore these rules. Get out the Minute Book, and read what’s in it, and follow the rules such as holding annual meetings, electing officers, and get used to having the family document authorization for contracts, leases, corporate borrowing, and the like. Don’t wait until the IRS shows up, or you receive court papers in a proceeding and you have no records to show.
More questions? Take a look on our website. We have a checklist for you to look at to see whether you are following those formalities required of your business, and then give us a call. It may be time for a “checkup” to review your practices, and get your records caught up before any problems arise!
John L. Maier, Jr.