Your Corporate Minute Book:
Reasons to Keep Your Company’s Record Books Up to Date
One of the most commonly ignored aspects of a legal entity is failing to maintain the company’s minutes from its shareholders, members and board of director’s meetings. This is especially true for small businesses and their owners. It’s important to remember these are the company’s official records and have a legal purpose.
This doesn’t apply just to corporations
Limited Liability Companies, Professional Corporations, PLLCs, Limited Partnerships and virtually all other types of legal entities should maintain their records in a timely fashion.
The entity’s records document the major decisions whether that is:
Attorneys will tell you the entity records document becomes very important in case you are sued. You may be at risk if a plaintiff could “pierce the liability veil” potentially leaving the owners at risk.
We are not attorneys nor do we give legal advice. We do make all possible efforts to highlight important issues our clients need to be aware of.
So, to address this statement, we have asked one of our trusted corporate attorneys to express an opinion on the above statement about LLC’s not having to record minutes.
Entities are set up to create a separation between an individual (or individuals) and the operation of the business.
This is to limit personal liability among other reasons. That privilege can be lost if the entity is set up in a “sham” without legitimate separation.
One of the easiest ways to prove this in court is to show the organizational formalities (i.e. bylaws or a company agreement, resolutions, minutes, etc.) were ignored.
If there is more than one owner, the problem becomes even more serious. Artificial entities (corporations, LLCs, limited partnerships, etc.) are “creatures of the state.”
State law allows them to enjoy the same status as a person meaning they can enter into contracts, bring lawsuits, etc. However, they can only operate as the laws allow.
For LLCs, all of their management, rights, etc. must be set out in the company agreement. The company agreement, for instance, will describe who has power to sign for the company.
Without that authority, it can be argued that anyone signing would be doing so individually and not for the company. That is, the signer would be individually liable under the contract. This defeats the purpose for which entities are used.
Further, when you have more than one owner, problems can arise as to who makes decisions, how profits are distributed, what happens if the company needs money, how do we end it if needed and so forth.
For LLCs, all of these should be set out in the company agreement. In the absence of an agreement, a dispute would have to be settled in court with all the costs and delays that entails.
We constantly search for ways to help our clients avoid problems. Looking forward for potential strategic moves, problems and opportunities is our fundamental approach in working with clients.