As 2012 winds down, corporations and limited liability companies should ensure they have documented major transactions occurring during 2012, and have otherwise complied with required and recommended corporate formalities. Failing to do so can jeopardize the “limited liability” protection afforded corporations, leaving shareholders exposed to claims based on corporate activities. Even a closely-held corporation, with only one or a handful of shareholders, should direct its Board of Directors to adopt appropriate resolutions concerning activities of the previous year. Note, while this article discusses corporations, similar recommendations apply to limited liability companies.
Pass Appropriate Board Resolutions
Any corporation that has not held a director’s meeting during the year or documented important transactions such as loans, the sale of major assets, or purchases of unrelated business lines, ought to prepare corporate resolutions recognizing and approving such transactions. Ideally, the resolutions should follow a meeting of the corporation’s Board of Directors. If it is impractical for the corporation’s directors to meet, written resolutions approved by the directors may, in many cases, be substituted.
Call a Meeting of Shareholders
Similarly, many corporation bylaws specify that a shareholders meeting be held on a yearly basis. This meeting would typically include the shareholders’ election of the directors whose terms had expired. Even where the corporation’s directors are not subject to election in any particular year, the meeting of shareholders serves the valuable purpose of demonstrating the
corporation’s compliance with the formalities of corporate law.
Ignoring the Corporate Formalities Can Be Dangerous
The importance of maintaining the formal integrity of the corporation, which is a separate entity from its shareholders, cannot be overstated. All major transactions taken by the corporation should be reflected in official minutes, even if the
corporation consists of only one director or shareholder. Failure to do so can allow third parties to sue the shareholders directly for corporate debts under a “piercing the corporate veil” theory. The result can be exposure of a shareholder’s personal assets for an obligation of the corporation.
For the same reason, the corporation must always be treated as a separate entity. All contracts entered into by the corporation, including employment contracts, buy-sell agreements, profit sharing plans, pension plans, trust agreements, loans, leases, purchase contracts, and corporate brokerage investment accounts, should be made in the name and on behalf of the corporation, and should be memorialized in the form of appropriate minutes which are to be included in the corporate minute book.
Start Off the New Year on a Strong Note
Taking the steps of documenting your corporation’s transactions over the past year will provide a strong foundation for meeting the challenges of the year ahead. If you have any questions, Trepanier MacGillis Battina P.A. Initial Legal Consultation Policy is available to consult with you or your corporation’s Board of Directors to ensure that the loose ends of the past year are fully addressed. Feel free to contact one of our Minnesota corporate law attorneys at 612.455.0500.
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About the Authors:
Minneapolis corporate attorneys Craig W. Trepanier and James C. MacGillis regularly represent Minnesota entrepreneurs, emerging businesses, and established corporations in their corporate law matters. If you need assistance selecting a business entity, incorporating in Minnesota, creating an S-Corporation, registering a Minnesota limited liability company (LLC), or updating your corporate minute book, please contact them. Craig can be reached at 612.455.0502 or craig@trepanierlaw.com. Jim can be reached at 612.455.0503 or jmacgillis@trepanierlaw.com. Trepanier MacGillis Battina P.A. is a Minnesota corporate law firm located in Minneapolis, Minnesota.
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