Now that tax season is over, and we’ve finally caught a breath after filing our tax returns in a timely fashion, it is a good time to consider some corporate housekeeping tips that will help keep intact the limitation of liability that corporate entities provide to their shareholders. While not necessarily the first item on the agenda of an executive team’s hectic schedule, the failure to perform simple corporate housekeeping and follow certain corporate formalities can have a serious negative impact on the ability of a corporation to shield its shareholders from liabilities. Creditors can use the failure to follow corporate formalities as grounds to “pierce the corporate veil” and look to the assets of the shareholders of the corporation to satisfy the debts of the corporation.
To avoid this negative outcome and to better maintain the limited liability of the shareholders of corporations, here are some corporate housekeeping tips that can help avoid having your corporate veil pierced:
Director and Shareholder Meetings
The Corporation should have annual director and shareholder meetings, and keep minutes of those meetings in an official minute book. Moreover, decisions made outside of the ordinary course of business, should be approved by the Board (and in certain cases, the shareholders), and records of meetings or written consents approving those decisions should also be kept with the minutes.
Organize Company Records
The minute books of the corporation should be updated frequently and contain minutes of all director and shareholder meetings.
Review the Bylaws
The directors should review the bylaws of the corporation to ensure that it is operating in compliance. A review of the bylaws will also be helpful to determine if changes to the bylaws are necessary in light of new facts and circumstances.