by LawInc Staff
July 1, 2016
While it is extremely important to properly form a corporation for your business, proper corporate maintenance can be even more important. Donâ€™t be lulled into thinking you are always protected once your corporation is formed. As a corporation owner, you are responsibility for proper maintenance. Failure to do so can have devastating consequences in case of a lawsuit. If you are a corporation owner and answer no to any of these questions, you may be at risk.Â
Are Your Corporate Minutes up To Date? Â
Organizational minutes are prepared when a corporation is formed and set forth matters like election of officers and directors, stock issuance and other corporate formalities. However, corporate minute preparation should not stop there.
Every year after formation, minutes should be prepared and kept along with your other corporate records. Many states have laws requiring minutes to be prepared on a yearly basis. For example, California corporations Code section 1500 requires California corporations to keep minutes of the proceedings of shareholders and Board of Directors which must be kept in written form. Failure to comply with the requirements of the California corporations code can result in personal liability of the corporation’s shareholders, directors and officers for all corporation debts and obligations without limit.
Although the minutes do not get filed with the government, they must be produced in connection with a lawsuit or audit. Proper corporate maintenance dictates preparation of annual corporate minutes. Don’t risk your corporation.
Are You Filing and Paying Federal and State Taxes? Â
Unfortunately, many business owners fail to realize the true consequences of not filing and paying taxes. The reality is that the state taxing authority will notify the Secretary of State whenever they are owed money or have not received tax returns on a timely basis. The taxing authority even has authority to have your corporation suspended or voided for failure to file or pay taxes.
This means that if you are involved in a lawsuit you have no corporation and you, as an owner, are personally on the hook. In states like California, a suspended corporation provides no liability protection. Not only can a suspended corporation not defend itself against lawsuits, it also cannotÂ initiate lawsuits or enforce contracts. Furthermore, other parties can enforce the contract terms, even though your corporation cannot. A suspended CA corporation also loses its right to engage in business and can even lose the corporation name since the name becomes publicly available for registration.Â
Are You Filing Annual Reports? Â
Almost all states require an annual report filing which includes information like the corporation address and names and addresses of the corporationâ€™s registered agent, officers and directors. If an annual report filing is late, a penalty usually quickly ensues. The more time that transpires without filing, the stiffer the penalties become. Eventually, a failure to file an annual report will usually result in corporation suspension. This creates the same issues encountered when failing to file or pay taxes. The corporation basically becomes void and the penalties keep racking up.
To prevent this issue, carefully mark your calendar to ensure you are complying with all annual filing requirements. Create automated annual reminders so you do not forget. Also make sure the mailing address you have on file with the state is up to date. A lot of states send reminders when itâ€™s time to file the annual report. Engage in proper corporate maintenance by handling all corporation tax related requirements on a timely basis.
Do You Maintain a Separate Bank Account? Â
Too often, small business owners treat their corporation bank account like their own piggy bank. They carelessly add and withdraw funds while failing to realize the cost of doing so.
When you have a corporation you are responsible for keeping everything separate. That means that your personal bank account and finances are separate from the corporations bank account and finances. If funds are ever taken out of the corporation bank account, the withdrawal must be properly documented and disclosed for tax purposes. Donâ€™t make the mistake of commingling personal and business funds. It happens very often, especially for corporations with only one owner, and is almost always an issue when an attorney suing your corporation is trying to invalidate the corporation. Doing so can leave you personally liable for all corporation debts and obligations without limits the amount. Corporate bank account maintenance is integral to ensuring liability protection.
Are You Correctly Signing Documents?Â
Corporation officers and directors often fail to execute contracts, send letters, or even send emails with the proper language and signature block. Simply put, do not ever sign a contract that does not bear the name of your corporation. When signing, you must also use a proper signature block which indicates the document is being executed by an officer or director of the company, in an official capacity. Signing documents with your name, alone, can subject you to personal liability.Â
NAME OF CORPORATION
By: Officer Name, Position
Don’t risk your personal assets by failing to properly handle these basic corporate maintenance tasks.