After the Corporation is Formed

Posted on June 1, 2009 by David Gass 1 Comment

If you thought filing the paperwork to form a corporation or LLC was all that was required to maintain the benefits of the entity, you were wrong. There are several things required to maintain the corporate veil and benefits of a corporation or LLC structure.

Every state has a requirement that you maintain specific documents for your corporation each year. In every state there has been case law that shows owners of businesses, who failed to maintain these corporate records and had their personal assets at risk because the corporation was deemed invalid.

I often hear, “I thought a corporation was there to protect my personal life no matter what.” Well, sorry to those dreamers who feel this way. Remember, there is no such thing as a free lunch.

If you are going to form a corporation and want the protections and tax savings the corporation provides, you must do something in order to maintain those privileges. As in any relationship—marriage, children, friends, employees—you have to work at keeping the relationship strong. It doesn’t just happen automatically because you get married or have a child.

With a corporation, three key areas that you need to maintain are:

• Annual meeting minutes of the shareholders
• Stock ledger and stock certificates issued with shares to each shareholder
• Resolutions that track the activities of the corporation

Most business owners understand the need for these items, but aren’t sure how to track them or put them together. There is a great software program I recommend to track all of this for you called the BizDoc Software. The program tracks each of these areas for you and much more. www.businessdoc.com

It is also helpful for business owners to understand the various terms associated with the corporation and LLC. The following is a list of some of the key terms.

State Statutes – Laws developed by each state that govern how a corporation or LLC can operate in their state. Articles of Incorporation – The document that is filed with the Secretary of State in order to form the corporation. It indicates the name of the company, number of shares, etc. Articles of Organization – This is the LLC equivalent to Articles of Incorporation.

Bylaws – The bylaws in most states do not need to be filed with the Secretary of State. The bylaws are the corporation’s requirements for running the business. It says what officers there will be, how they are elected, when meetings will be held and how voting of the shareholders will take place, to name just a few of the items. Operating

Agreement – This is the LLC equivalent to Bylaws. Officer List or Member/Manager List/ Annual Report – An annual list of officers filed with the Secretary of State indicating the names of the officers of the company, as well as other information.

Stock Ledger – The stock ledger is where all names of shareholders must be recorded. Each transaction of a stock certificate is written down in this booklet.

Stock Certificates – The Corporation’s paper that represents the number of shares owned by the shareholder written on the Certificate. Certificates of Ownership – The LLC’s paper that represents the percentage of ownership by the members of the company.

Resolution – A resolution is a written document that provides permission for a corporation to perform a specific task. The permission is granted by either the Directors or shareholders depending on the activity.