Business Law

Checklist: Corporate Formalities

To protect corporate representatives and shareholders, directors and officers should be aware of the following obligations:

DO'S

Holding Scheduled Meetings

  • The date for your annual shareholders' meeting should be in the bylaws.
  • Bylaws typically call for an annual board of directors meeting to be held immediately after the annual shareholders' meeting.

Holding special meetings of the board when matters of importance come up such as:

  • Entering into a new lease
  • Entering into a substantial funding commitment
  • Opening a new bank account
  • Entering into any other significant contractual agreement
  • Changing an officer's salary
  • Filling a vacancy on the board or appointing a new officer
  • Entering into a significant new venture;
  • Considering the sale, in whole or in part, of the assets or the dissolution of the business

Keeping good records

  • Take minutes of meetings and maintain a corporate record book.
  • Keep good financial records.

Keeping things close to the vest

  • Directors and officers owe a fiduciary duty to the corporation, meaning that they must at all times do what is in the best interest of the corporate entity and its shareholders.
  • Keep corporate matters confidential to the extent possible.

Developing a Planning Routine:

  • Review each year's activities during the final month of the fiscal year.
  • Budget ahead for the longest period reasonably possible and review and analyze results at least semi-annually
  • Review operations with your attorney and CPA to ensure tax planning is properly emphasized.
  • Develop formal long-range planning capacities beyond the budgeting process.

Signing all contracts in the name of the corporation with a signature block in substantially the following form:

--[Name of corporation]--

By:__________________________
--[Title of individual]--

And corporation representatives should also:

  • Adopt a corporate resolution that authorizes an officer to sign a contract.
  • Make all corporate purchases in the name of the corporation
  • Maintain corporate funds in a corporate account or accounts separate and apart from any other account
  • Carry reasonable insurance on the corporation, considering the risks inherent in the corporation's business
  • Make sure you fund the corporation at the time of incorporation with enough money to keep it going during an initial phase of operations
  • Set up a review mechanism for decision-making, so that all aspects of a proposed course of action will be considered
  • Comply with Articles of Incorporation, the Bylaws, and other organization documents or contractual restrictions

DONT'S

  • Don't commingle corporate and personal funds
  • Don't use corporate accounts for personal loans or other personal purposes
  • Don't do insider deals on loans, leases, etc., between the corporation and a principal other than on an "arm's length" basis (just as you would with someone not associated with the corporation)
  • Don't use corporate assets for personal use

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