If you are like most successful business people, you care deeply about your customers and your team. On the other hand, legal matters, including keeping your business on the right side of the government, are often an expensive headache. You know that it’s usually a good thing to incorporate, put important things in writing and file your taxes on time. But, it can be daunting to do all of these administrative tasks while keeping on top of the business that pays the bills.
Once a business has been incorporated, there are some simple steps that need to be taken in order to maintain the limited liability benefits of the corporate form and keep the new business entity legally compliant. Mainly, corporations need to keep certain documents, including corporate contracts, leases, and shareholders’ and Board of Directors’ meeting minutes.
“Small businesses often struggle with compliance, especially when they face an ever-changing regulatory environment,” said Beth Milito, Senior Executive Counsel, NFIB Small Business Legal Center. “Despite the challenges, it’s easier than ever for small businesses to get corporate compliance help online. A little planning and good organization go a long way towards protecting a business from unnecessary risk.”
Here are some tips to help small businesses stay on top of their corporate compliance tasks:
1. Set a game-plan for your business:
Corporate Bylaws document the corporate governance rules for your business, laying down the process for its internal administration and management.
These can include how directors are elected, how meetings of directors and shareholders are conducted, defining the organization’s officers, and describing their duties.
Bylaws can be drafted at the same time as the incorporation documents and, while many businesses fail to draft them, doing so will help your business avoid a number of corporate governance issues.
2. Record and keep Corporate Minutes:
Meeting Minutes are perhaps the easiest way to maintain compliance, but also the easiest thing to fall behind on without a good system. They need to specify topics such as:
- bank accounts and spending
- voting results for each new resolution
- written consents before or soon after the approved actions, which may include the election of officers, the allocation of authority to committees, the issuing/selling of stock and bank account designation.
Without minutes, your business may leave itself open to investigations by the IRS who may focus on discrepancies between corporate resolutions adopted by the board of directors, and the actions of the corporation.
3. Keep track of your records:
Once you’ve put in the hard work up to this point, make sure you file your documents appropriately, and be aware of how long everything needs to be kept.
Some records need to be kept indefinitely, such as your corporation documents, labor contracts, minutes and patent registrations. Others need only be kept on record for six years. These include sales records, company purchase records, employee payrolls and travel expenses. Finally, your monthly and quarterly financial statements only need to be up to date for the previous three years. Still, before you throw out anything, double check and consult with a lawyer.
Why is it so important to keep these records? Should the company be involved in a lawsuit, plaintiffs will be asked to provide necessary documentation, which, if not sufficiently up-to-date, may be used to infer improper conduct by officers without due authorization. This, in turn, may “pierce the corporate veil”, allowing the winner of the lawsuit to access the personal assets of officers and shareholders.
In short, not keeping minutes, and other corporate documents in order, can transfer liability from the company to the shareholders, negating the protections provided by incorporation.
In order to avoid this situation, you not only need to keep your minutes, but keep them organized too. Many businesses today choose to store documents online in the cloud, so they’re safe and accessible from any location. Rocket Lawyer Legal Plan members can get unlimited secure document storage to make the corporate compliance process easier from start to finish.
Rocket Lawyer makes corporate compliance easy for small businesses, and is the preferred online legal provider of The National Federation of Independent Business (NFIB). You can create Corporate Bylaws, Meeting Minutes, and other compliance documents at the Rocket Lawyer Corporate Compliance Center, and be well on the way to avoiding many of these potentially destructive legal issues.
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