The Importance of Corporate Formalities
While business incorporation is important for any business owner in order to limit his or her personal liability for business debts, it may not always be enough as far as protection is concerned. Another aspect of protecting oneself, brought to life recently by The Business Law Post, relates to corporate formalities, which are important even to one-person corporations and LLC owners. Should these not be observed, the owner may still be liable for company debts.
The following are all considered corporate formalities:
- Bylaws: a set of rules formed by the company that governs how the corporation is run.
- A Board of Directors with Formal Meetings: a BOD should be established by every corporation. This BOD should meet on a regular basis and minutes should be taken and recorded at each meeting. At the next BOD meeting, the minutes should be approved and adopted by the board to ensure accuracy. Every major decision should be added to the corporation’s bylaws.
- Shareholders Meetings: all company shareholders should meet regularly – probably less frequently than the BOD – with the same minutes process outlined above.
- A Separate Bank Account: at no point should personal and company funds intermix.
- Stock Ledger: this ledger should reflect stock ownership along with the names and addresses of all shareholders.
- A Name: while it’s a given that each corporation would have a name, all business should be conducted under this name whether by the owner, a director, an officer or other employee.
- Clear Assets, Filings, Taxes: all assets, filings and taxes should be handled in a formal manner to ensure legal operations and overall standing.
In all situations, it is important to follow corporate formalities at all times to ensure coverage under your corporation status.
Should you have questions about the legality of your business operations or any other question pertaining to business law, contact Attorney Michael Hynum at Hynum Law today.