Corporations provide business owners with many benefits, including protection from liability and the opportunity to more easily transfer an ownership interest. However, in order for an owner to enjoy the full extent of the benefits of incorporation, corporate formalities must be maintained. This means that the corporation must actually behave as a corporation or separate legal entity, rather than as an extension of the individual owner.
For large corporations, maintaining formalities is not typically a problem. The owners are independent from the business; board members conduct periodic meetings to address business issues that arise; and the corporate secretary takes minutes when the meeting occurs. For small businesses and closely held corporations, however, questions can arise regarding how often the corporation should hold meetings and update minutes.
A failure to maintain corporate formalities such as regular annual meetings can create problems if your corporation is ever audited or sued, because it can indicate that the business is not really being operated as a corporation. It is simple to hold meetings and update minutes in order to protect your business, and you should do so regularly. An experienced corporate law attorney at Sepahi Law Group, APC can assist in setting a schedule for meetings and explaining the requirements for taking minutes. Call today to speak with an attorney who can provide you with the advice and guidance you need.
When Should You Hold Meetings and Update Minutes?
When a corporation is initially formed, there must be an initial meeting of the board to elect officers, issue shares of stock and establish corporate bylaws. When this initial meeting is held, minutes should be taken to record what occurred during the meeting and what decisions were made.
Once the initial meeting has taken place and the corporation is up-and-running, there should be an annual meeting of the Board of Directors at least one time per year. This is true even if you are the sole owner of the corporation and you are the only one who attends the meeting.
At each annual meeting, the secretary should take minutes to record the events of the meeting. When a corporation is owned and operated by just one individual, that person may be the President, Vice President, and Secretary. This means he or she must call the meeting to order, run the meeting and take minutes as well. At the annual meeting, the officers must be re-elected to their position. Again, this is true even if the same person holds all positions.
Outside of the annual meeting, corporations may wish to hold meetings and update minutes when important events occur such as the hiring or termination of an employee or the acquisition of new machinery or corporate real estate.
Holding regular meetings and updating corporate minutes allows the Internal Revenue Service, as well as all federal and state regulators, to see clearly that the organization actually is acting as a corporation and that the corporation was not simply created by the owners to avoid legal obligations, reduce taxes or limit liability.
Sepahi Law Group, APC can help your business to hold meetings and update minutes. Call today to speak with a San Diego corporate formation lawyer to learn more about how to protect your corporate identity.