Tips for observing corporate formalities

January 26, 2017

When we incorporate our businesses, we must be cautions and make sure to maintain the legally required corporate formalities. Observing formalities protects representatives, shareholders, officers and directors with specific obligations. Corporate obligations are documented and may be subject to a request to produce those documents for a variety of reasons related to law and business. While some corporate entities are larger businesses, they have significant work and resources dedicated to satisfying and document corporate obligations. Otherwise, smaller corporations managed by a smaller number of people, or one or two individuals, elect to work with their legal counsel to keep up with corporate formalities.

The following is a list of formalities that should be followed in any corporation:

  1. Scheduled Meetings

Your corporate bylaws should identify the time and location of the annual meeting of the shareholders of the corporation. In many cases, there is an annual board of directors meeting that can be scheduled to take place immediately following the annual shareholders meeting. The business to be discussed and documented can be everything from very simple to more complex.

  1. Special Meetings

The bylaws may specify the time, place and manner for special meetings so the board of directors can vote to act on important matters affecting the best interests of the corporation. Business related to finances, property, contracts, employees and officers can be discussed and considered by a vote at special meetings.

  1. Record-keeping and Contracts

Always keep an accurate record of business taking place that affects the corporation. Any time there is a special meeting, for example, make sure to well-document everything that happens to the extent that another person who was not at the meeting could look back and know everything that took place. Notes and minutes should include information identifying who, what, where, when and why details. When signing contracts, always use your name, corporate title and identify the corporation as it’s entity is named. The goal is to avoid any appearance that you are signing with personal liability outside the corporate entity.

  1. Corporation’s Best Interests

Officers and directors of the corporation owe a fiduciary duty to the corporation, and to advance the best interests of the corporation, as stated in the bylaws. In most corporations, the bylaws state the corporate purpose as doing business to make a profit for the shareholders. If an officer or director engages in any actions that harm or reduce the corporation’s ability to make profits, that officer could be legally liable for a breach of fiduciary duties.

  1. Corporate Planning

While we cannot predict sales, markets and business deals, we can maintain a focus on the purposes and objectives of the corporation. Planning for corporate expenses is something you can predict. Working with a tax and other financial professionals can be important in satisfying your fiduciary duties to the corporation. Taking advantage of all business and financial opportunities is something that should be well-documented in the event transactions and occurrences would arise in the future. Making it clear why action was taken or not taken can help reduce uncertainty in the future.

While corporate formalities may appear challenging, there is no need to worry so long as the officers and directors in the corporation act in the best interests of the corporation. Failure to maintain corporate formalities can result in what is called the piercing of the corporate veil, and if that happens, shareholders, officers and directors could be exposed to personal liabilities.

For assistance with setting up and maintaining corporate formalities, please call on us for assistance.

About us: The Michael Kim Law Firm, PLLC, in Dallas, Texas, is a full-service business transaction and litigation law firm of experienced attorneys serving the Dallas-Fort Worth Metroplex.

The Michael Kim Law Firm, PLLC, represents individual clients and organizations with business and commercial law needs. The firm also represents both plaintiffs and defendants in general civil litigation, injury, property, employment and consumer matters.

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