Most corporations are subject to record keeping requirements under state laws. Domestic corporations are those corporations which are organized and chartered in a particular state. They are usually required by law to keep:

  • Adequate and correct books and records of account
  • Minutes of the proceedings of its shareholders, board of directors, and committees of the board
  • Records of share transactions
  • A record of shareholders' names and addresses and the number and class of shares held by each

These minutes and other books and records must be kept in written form or another form capable of being converted into clearly legible tangible form. They also must be in English.

Foreign corporations, which are corporations organized under the state law of a different state, generally have to keep the same records as domestic corporations, unless the corporation's shares are traded on a national stock exchange of the United States.

A close corporation is a corporation whose shares are held by a single shareholder or a closely-knit group of shareholders. The shareholders may sign a shareholders' agreement dispensing with the legal requirements concerning board and shareholder meetings. Under these circumstances, the record keeping requirements for corporations relating to these meetings would not apply. However, the extent of this exemption from legal requirements is not always clear, so it's best to observe corporate formalities and record keeping requirements.

Documents

Record keeping requirements involve the following kinds of documents:

  • Minutes show the proper holding of a meeting and record actions taken at the meeting, such as directors elected, officers appointed, resolutions passed, reports received, and contracts approved. Generally, minutes also indicate the time and place of a meeting, the type of meeting, how it is authorized and noticed, and the issues considered. Minutes of meetings of directors and board committees usually include the names of those present and those absent.
  • Books and records of account are financial records which show income and expenses of the company.
  • Bylaws are the rules adopted by the corporation to run the business.
  • Record of shareholders show the names and addresses of shareholders and the number and class of shares held by each shareholder.

Partnerships

Most partnerships are formed by registering the partnership with the secretary of state's office in the state in which the partnership is formed. Partnerships have, or should have, a written partnership agreement or operating agreement, which sets out the rules by which the partnership is to be governed. Although the agreement does not usually have to be filed with the secretary of state's office, each partner should have a copy of it.

Although partnerships do not have the same record keeping requirements as corporations, they should keep books and records of account and other records that document business transactions.

Sole Proprietorships

In a sole proprietorship, one person owns all of the assets of the business. That person is also personally liable for all of the business's debts. The kinds of business records that a sole proprietor should keep include:

  • Books of account
  • Power of attorney, which appoints someone else to act in the sole proprietor's place
  • Trust documents
  • Last will and testament

If the sole proprietor dies or becomes disabled, someone else will have to either run the business or close it, so these documents are important.

If you have any questions about what kinds of business records you should keep, contact a Small Business Lawyer in your area.

Questions for Your Attorney

  • Who is responsible for keeping the business records of a corporation?
  • If a close corporation fails to keep business records, can it lose its status as a close corporation?
  • Can a partnership exist if there is not a written partnership agreement?