For many business owners, paperwork is the least enjoyable part of owning or running a business. But you could argue that it’s one of the most important. Whether you are a new entrepreneur just starting or you’ve been in business for years, it’s imperative to stay on top of your corporation’s record keeping for both legal and strategic reasons. While you might be tempted to overlook this daunting task and instead focus your time and energy into sales, customer satisfaction, product development, etc., you’ll need to dedicate some of your time and energy to records retention.
Regardless of your business structure, here are a few things you should know about corporate record keeping.
Why Keep Corporate Records
First, it is important to know and understand the “why” behind keeping corporate records. Not only will knowing and understanding this make doing it easier, but you’ll also quickly realize what can happen if you don’t keep good records.
One of the most important reasons to keep good records is to maintain your “corporate veil” protection in the event you face lawsuits and creditors. If someone decides to sue your business, they may attempt to attack and pierce your corporate veil, showing that you failed to follow proper formalities and recordkeeping per state law. If this occurs, they may attempt to go after your personal assets to
receive their full settlement.
One of the reasons many business owners form a corporation or LLC in the first place is for the shield of limited liability. Because you have that protection, you’ll want to do everything in your power to safeguard it, which is where good record keeping can help. Don’t provide any potential lawsuit or court any reason to suspect or doubt your company’s compliance.
In addition to the corporate veil, there are many other reasons you’ll want to keep good records. These reasons can include a request from the IRS, where they might request written evidence (meeting minutes), that your company approved an important decision regarding the corporation.
If you ever want to sell your business, you’ll need to have kept accurate records to provide a potential buyer. Most potential buyers will want to thoroughly examine all business records to help determine past performance and profitability. Records that are incomplete or poorly maintained may result in a lower purchase price.
What You Need to Keep Track of
Requirements that determine what you need to keep as part of your records will vary from state to state. As a general rule, corporations will be required to keep more records per state requirements than LLCs. Here are a few items that are generally required to remain be kept on site for both S and C Corporations:
- Articles of Incorporation
- Any Amendments Filed with the State
- Corporate Bylaws
- Annual Reports
- Names and Address of Directors and Officers
- Names and Address of Shareholders, including their number and class of shares
- Documentation of Any Actions/Decisions from Shareholders and Director Meetings (meeting minutes)
While most states have fewer requirements for LLCs, there are still going to be requirements for what records need to remain on site. These records may include:
- Name and Address of Members and Managers
- Articles of Organization
- Any Amendments Filed with the State
- Operating Agreement
Minutes serve as your corporations’ memory and are intended to serve as the official record of all corporate activities. In the meeting minutes, you should include all major votes, resolutions, and transactions that affect the company. Also, you should also be sure to include:
- Elections of New Officers or Directors
- Issuance of Stock
- Compensation Increases
- Approvals for Items like a Long-Term Lease, Group Health Plan, or other Decisions that Impact the Company
- Approval for a Financial Decision
- Annual Director and Shareholder Meetings
While it is important to be thorough, you don’t need to record every tiny detail from the meetings. Keep the language simple and stick to basic facts. Generally, minutes will include:
- Date, Time, Location
- Roll Call
- Agenda Items
- Voting Actions (document how each voted and who abstained)
Minutes should be kept as part of your corporation’s records retention and kept for a minimum of seven years. Following a “reasonable request,” shareholders, officers, and directors are entitled to review meeting minutes.
Good record keeping will help ensure your company is compliant with state laws while maintaining your corporate veil.