Technorati ProfileNow that tax season is safely behind us and lazy days of summer are coming, it is a good time for companies to focus on another aspect of their business that has likely gone neglected - the legal business cleanup. Contrary to Ron Popeil's advice, with a business, you can't just set it and forget it. Your responsibility with corporations, LLCs, and other entities does not end when you file the formation papers and prepare the bylaws or LLC Agreement. The liability shield provided by these entities requires some diligent maintenance activities.
As we move into summer, companies often have a bit more time to devote to this process that is not only good for the sanity of the management, but could have important legal ramifications as well. Here are some questions to ask yourself about your business:
- When was the last time your company held an annual meeting?
- Are you current with your annual reports?
- Have you changed officers and given them proper authorization under your governing documents?
- Have you made an agreement with the other owners if one of your key members or stockholders dies or is permanently disabled?
- When was the last time you did an honest valuation?
- Do you have signed copies of all of your important contracts and agreements, and can you locate them?
- Have you properly documented loans to the company or other related activities?
- Do you keep separate bank accounts for your company's needs and keep your finances complete separate?
Each state may deal with the particulars differently, but your company is generally required to maintain records of its actions in a company office or some other records location. These records include bylaws or operating agreements, minutes of meetings or written consents, issuances of stock or other securities, and authorizations for certain actions of the company such as new debt, major purchases, and other events that require the votes of stockholders, members, or management. Maintaining these records can seem like a formalistic chore, particularly when a small number of people are wearing many different hats in an organization, but the consequence subject you to liability. In order to protect yourself from having a court "piercing the corporate veil" and removing the liability shield that made you set up the legal structure in the first place, formalities become the rule.
So take some time this summer to take another look at your company records and make sure that you keep them up to date. Your lawyer or accountant can assist you through this process. I have helped companies through through it, and though it may feel like a chore, it is time well invested to keep you protected.