These records have a major role to play in helping maintain the corporate veil protection one needs against potential lawsuits and creditors. If one files a lawsuit against the business, he or she might try and pierce the corporate veil in a bid to prove that the business failed to show proper corporate formalities as required by the law. The person might also go ahead and go after personal assets as part of the settlement. The main reason why anyone would form an LLC is to maintain the shield of limited liability. Hence it is important as a business owner to maintain that limited liability by maintaining proper corporate records. It would be wise not to give anyone any reason to question the company’s compliance with the law.
Beyond maintaining the corporate veil, one needs to maintain good and proper records just in case they are requested by the IRS. One might be required to give written evidence as to prove that the company approved important business decisions like changing its fiscal year. Another reason to maintain accurate records is that potential purchasers may want to examine past records to evaluate past performance. Poorly done or incomplete records could be detrimental as they may lower the company’s price drastically.
2. What do you need to keep track of?
Each state has different rules in regard to record keeping. With corporations having more state-imposed requirements compared to LLC’s. These include;
– Articles of incorporation.
– Amendments filed with the state.
– Corporate by laws that state the company’s operations.
– Annual reports.
– Names and addresses of directors and officers.
– Names and addresses of shareholders including their number and class of shares.
– Documentation of actions and decisions from shareholder and director meetings.
There are many states that do not have record keeping rules for LLC’s, but they may need to keep records like;
– Names and addresses of members and managers.
– Articles of organization.
– Amendments filed with the state.
– Operating agreements.
Record keeping requirements vary according to state, but this does not mean one should not keep clear records as a precautionary measure.
3. Keeping proper minutes for meetings.
Corporations are required by the law to keep proper minutes, but do not demand the same of LLC’s. LLC’s need only keep meeting minutes if it has been stipulated so in the operating agreement. Meeting minutes serve as the official record of corporate activities. They document any major event and activity regarding the company along with;
– Election of new officers and directors.
– Issuance of stock.
– Compensation increases.
– Approvals for items like long term leases.
– Approval for final decisions like business loans.
– Annual director and shareholder meetings.
Meeting minutes should be kept simple and stick to the basic facts surrounding the meeting. Minutes should ideally be recorded soon after the meeting as the serve as the company’s institutional memory.
Minutes should include basics like;
– Date, time and location of the meeting.
– Attendance roll call.
– Agenda items and whether they were addressed.
– Any voting actions.
Minutes should ideally be filed as part of the company’s corporate records for at least seven years. Upon reasonable request shareholders, directors and officers should be allowed to review meeting minutes. It is also in order to keep meeting minutes done in a particular basic format. Good records will keep the company compliant with any state laws as well as act as a corporate veil for when trouble strikes.
Featured Image: DepositPhotos/ Milous
