This time of year, it is crucially import for businesses to review their records and record keeping practices to ensure the business is maintaining proper corporate formalities. During the course of the year, businesses should be keeping proper records of their activities, especially when it comes to major changes like adding a partner, introducing a new business line, taking on a major new debt obligation, or gaining or losing an officer or major asset. It is a statutory requirement in North Carolina, and in most other states, for both corporations and limited liability companies to hold an annual meeting, or to adopt and ratify actions by executing official annual minutes, of the Shareholder and Board of Directors for a corporation and the Members and/or the Managers of a limited liability company. At least annually, such annual meetings should be held. Alternatively, the chief officer of the company should arrange for an attorney to prepare annual minutes to go in the company record book. Minutes do not have to be complicated, but the IRS and creditors almost always ask to look at the minute book when legal issues arise.
Maintaining good records is crucial to preserving limited liability and proper tax treatment. Especially for close-held or family companies, record keeping is a crucial factor when the corporate formalities of a company are evaluated by a court or the IRS. If a company does not record annual minutes, keep diligent records when the company takes significant action, or otherwise take the necessary steps to adhere to corporate formalities, the company’s limited liability may be called into question. This can have a negative impact on the legal standing of the company’s owners, directors, officers, and even employees by exposing their personal assets in the event of a lawsuit.
Signs that a company could use a refresher on corporate formalities include if vendors or business partners are confused as to whether they are dealing with a company or a person, if the corporate record books are bare, or if the funds of the company and its owners are co-mingled, among others. In these situations, it is best to contact an attorney to see about getting the records caught up and taking strides to improve moving forward.
In North Carolina, it is not required to hold an official, or in-person annual meeting. The General Statutes allow for ratification of actions without a meeting by adopting official annual minutes with the unanimous written consent of the Shareholders, Directors, Members, or Managers.
Our firm is glad to evaluate corporate records and practices regarding corporate formalities. Don’t hesitate to give us a call today to schedule a consultation to review your records or practices.
To discuss any record-keeping practices, please contact Blaydes Moore.