Checklist For Good Corporate Governance
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 a Corporate 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 documenting 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. Take a look at the following checklist 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!
•1. Is the corporation holding meetings as required by its Bylaws, or otherwise as required by law? Assuming its shareholders and directors do hold meetings as necessary, are minutes of meetings being kept, documenting major decisions taken by the directors and shareholders, which are over and above day-to-day management decisions (i.e. salaries, money transfers, dividends, loans and loan repayments, equipment or land purchases or leases, etc.)?
•2. Is the corporation adequately capitalized? In other words, does it have a proper base of funds to carry on its business?
•3. Are the corporation’s books of account up-to-date, and kept at its registered office or principal place of business?
•4. Does the corporation maintain a complete, up-to-date, record of its shareholders, including names, addresses, as well as the number and class of the shares held by each?
•5. Could the corporation produce, within fourteen (14) days, all of these records for an IRS auditor, director or shareholder who so requests?
•6. Has the corporation properly issued stock certificates to current shareholders, if required under by-laws?
•7. Are all directors or officers actively engaged in making decisions for the company?
•8. Does the corporation maintain adequate insurance?
•9. Does the corporation maintain its own bank account, separate from the personal accounts of its officers, directors or shareholders?
•10. Are personal expenses of officers being paid out of corporate bank accounts?
•11. If business expenses are paid from a personal account, is there documentation supporting the expense and any subsequent expense reimbursement to the individual?
•12. Are all transactions between entities or persons related to the corporation maintained at “arm’s length”? (i.e., is the corporation careful to avoid receiving a benefit from a related entity or person that it could not obtain on the market for the same terms)?
•13. Are all corporate loans to corporate officers, directors or shareholders properly documented with interest paid on the balance due by the person taking out the loan?
•14. Are the written leases in place between the corporation, as tenant, and any officer, director or shareholder as landlord, so the rent paid is properly documented as such?
Sweet & Maier, SC
114 N. Church Street, P.O. Box 318
Elkhorn, WI 53121