FAQ

FAQ

Why do I need corporate minutes?

According to statistics, 80% of US corporations fail to maintain their corporate minutes. For such corporations, the failure to prepare corporate minutes can have devastating consequences. Without properly drafted corporate minutes, the separate legal entity status of your corporation can be discredited. Ultimately, without corporate minutes, the courts, the IRS, and other taxing authorities can allow plaintiffs, creditors and other entities to sue you personally for debts and actions of your corporation.

Here are the primary reasons you need corporate minutes:

To protect your corporate veil. The primary reason businesses incorporate is to help protect the owners’ personal assets — home, family savings, automobiles, etc. — from business liabilities. That is because a corporation is a separate legal entity. However, the failure to prepare corporate minutes can result in the piercing of the “corporate veil” — the protection for the corporation’s owners. This means each owner can be named in a lawsuit (“alter ego liability”) and could be found personally liable for all debts of the business, as if the corporation never existed.

Because it is the law. The California Corporations Code mandates that all corporations keep adequate and correct books and records of account. This covers all minutes of the proceedings of its shareholders, board and committees of the board. Also, the bylaws of many corporations require their board of directors to have an annual meeting. Of course, small corporations in particular often have informal “meetings” where these matters are decided. However, it is important to subsequently prepare meeting minutes or unanimous written consents (signed by all the directors in lieu of a meeting) that approve the actions. By law, senior management and the board of directors are accountable. Violations can result in harsh penalties by the Department of Corporations.

To avoid higher taxes. Without the adequate corporate records, the IRS will consider you to be operating as an individual rather than a corporation. Accordingly, the IRS can “pierce the corporate veil” and impose an individual tax rate that could be much higher than the corporate one.

What are corporate minutes?

Minutes are the instant written record of a meeting. They often give an overview of the structure of the meeting, starting with a list of those present, a statement of the various issues before the participants, and each of their responses thereto. They are often created at the moment of the hearing by the secretary of the meeting, who may record the meeting in shorthand, and then retype the minutes and issue them to the participants afterwards. Minutes are important legal documents.

I’ve never heard of a law requiring corporate minutes, what’s the law?

California Corporations Code Section 1500 states: Each corporation shall keep adequate minutes of the proceedings of its shareholders, board and committees of the board; and all corporations must document such meetings of both shareholders and directors on an annual basis, and kept in written form.

What are the consequences of not preparing corporate minutes?

It is essential that businesses must keep good corporate minutes and records for the following reasons:
Personal liability. The primary reason businesses incorporate is to help protect the owners’ personal assets — home, family savings, automobiles, etc. — from business liabilities. That is because a corporation is a separate legal entity. However, the failure to prepare corporate minutes can result in the piercing of the “corporate veil” — the protection for the corporation’s owners. This means each owner can be named in a lawsuit (“alter ego liability”) and could be found personally liable for all debts of the business, as if the corporation never existed.

Violation of law. The California Corporations Code mandates that all corporations keep adequate and correct books and records of account. This covers all minutes of the proceedings of its shareholders, board and committees of the board. Also, the bylaws of many corporations require their board of directors to have an annual meeting. Of course, small corporations in particular often have informal “meetings” where these matters are decided. However, it is important to subsequently prepare meeting minutes or unanimous written consents (signed by all the directors in lieu of a meeting) that approve the actions. By law, senior management and the board of directors are accountable. Violations can result in harsh penalties by the Department of Corporations.

Higher taxes. Without adequate corporate records, the IRS can consider you to be operating as an individual, or partnership, rather than a corporation. Accordingly, the IRS can ‘pierce the corporate veil’ and impose an individual tax rate that can be higher than the corporate one.

What is a “corporate veil?”

The term “corporate veil” is a legal metaphor for the shield of protection that a corporation or LLC is supposed to create around the business’ owners and their personal assets.

Does the preparation of corporate minutes guarantee that my personal assets will be protected if my corporation is sued?

Preparing corporate minutes of one of many tasks corporations must complete in order to keep their corporate veils intact. Preparing corporate minutes, in conjunction with other measures, can help reduce the risk that the corporate veil will be pierced.

If I am the only owner and employee of a corporation, do I still need corporate minutes?

Yes. Even if the corporation is owned and operated by a single person, corporate minutes are still required. Although it is not possible to have “meetings,” all major decisions and actions must be documented in writing, in the form of corporate minutes.

Can I catch up if I am behind with preparing my annual minutes?

Yes. Even if you are years behind, you can easily catch up. By using our online order form, it is possible to wipe out years of non-compliance and place your records in order. If you postpone and wait until you get that letter announcing a lawsuit against your company or an IRS field visit, it may be too late. Your personal assets can be exposed.

What do I do with my minutes after they are signed?

Your original executed copy of the minutes should be kept, in a safe place, along with your other corporate records. Minutes need not be filed with any state or governmental agency.