Observing Corporate Formalities and Corporate Clean-Up

url-5Following corporate formalities should become a part of doing business in both corporations and LLCs. Corporates should observe corporate formalities to maintain their limited liability shield. As we all know, most of the time, business people form corporations and LLCs to limit their personal liabilities for the entity’s debts. If corporate formalities are not followed and observed however, courts may decide to “pierce the corporate veil” of the business entity and hold the shareholder(s) personally liable for the company’s debts.

A properly formed corporation which keeps an up to date corporate minute book also saves you in the event of an IRS audit: Corporate minutes and resolutions can provide proof for certain deductions and loans. In addition, corporate’s governing documents, along with up-to-date corporate record book, may be submitted to the government agencies such as to the USCIS, to prove the shareholders and their shares and roles in the company, as it may be required in certain U.S. visas where one or more owners are foreign nationals.

Aside from properly forming the corporation, issuing stock, appointing directors and officers, holding annual meetings of directors and shareholders, and special meetings of the directors when necessary, the corporation should keep a well-organized and up-to-date corporate record book.

The corporate minute book should also properly document the compensation amounts (whether it is salary, bonuses, or the reimbursement of business expenses) that the corporation intends to pay to its officers and directors, and dividends to its shareholders. How much the corporate intends to pay in rent, and authorizing the execution of any real property, or equipment, lease, purchase or sale, should also be properly documented.

Consequently, every corporation’s record book should contain the following, properly recorded, corporate formalities:

  • The corporation’s articles of incorporation, including any amendments;
  • The corporation’s bylaws, which sets the internal rules governing how the corporation is run, including any amendments and restatements;
  • The action (resolution) of the incorporator;
  • The board of directors, or sole director’s, first organizational director’s meeting;
  • The shareholder’s resolution to elect S-corporation status, where applicable;
    Properly completed and up-to-date stock certificates and stock transfer ledger which reflects the stock ownership of the corporation and the names and addresses of the shareholders;
  • Copies of the corporation’s completed SS-4, Secretary of State filings (very state specific), and where applicable fictitious business name statements, business license, and seller’s permit;
  • The annual minutes, or consents, of the board of directors and shareholders; and
  • The special minutes of the board of directors affirming significant corporate acts, such as the execution of a key employment contracts, lease agreements, loans, declaration of a bonus or dividend; etc…

Following the corporate formalities and maintaining a properly kept corporate book for both corporation and LLCc owners is vital, so that you do not put your ownership, the well-being of the company and limited liability protection it provides at risk. Board of Directors and Shareholder/member meetings should regularly take place and minutes should be kept properly.

At YAZICI LAW, we can clean up your corporate minute book, and prepare the necessary minutes or consents to have the corporation’s board of directors and shareholders (or members in LLCs) ratify past actions. However, it may be too late and impossible to recreate corporate formalities retroactively if you have already been served with a notice of legal action, or a pending IRS Audit.

Gokhan Yazici, an experienced and well-diversified New York business and immigration attorney, can assist you to draft your bylaws and to clean-up and/or maintain your corporation’s record book, and your annual and special minutes of the shareholders and directors. Please call 646-657-8144, or contact us via email.

Gokhan Yazici

Gokhan Yazici is an experienced attorney and counsellor practicing in the state of New York. He is specialized in U.S. Immigration Law, Corporate & Business Law, Business Transactions, Commercial Litigation, International Trade & U.S. Customs Law. Mr. Yazici holds an LL.B. degree from Istanbul University Law School and an LL.M. degree from Temple University James Beasley School of Law.