Corporate record keeping – is it as daunting of a task as it is often rumored to be? Why is corporate record keeping important?
Many people form a corporation to provide personal liability protection. This desired protection is typically financial in nature, and can include desired protection from liability for company taxes, liability for company indebtedness, and especially liability for lawsuits against the company. While most people don’t want their company to be sued and suffer loss, most people more importantly do not want to suffer loss of personal finances and assets.
A corporate veil is not a physical object, but rather is a legal term that represents a barrier making owners not be liable for corporate actions. Piercing of the corporate veil is terminology indicative of the corporate veil not providing separation and liability protection for owners. It is important to maintain a good corporate veil to prevent piercing of the corporate veil. For corporations, maintenance of the corporate book and corporate records is an important factor in maintaining the corporate veil.
Corporate records can include but may not be limited to a corporate book. Contents of the corporate book should include state filings and reports. Initial state filings in Pennsylvania include the articles of incorporation and a docketing statement. Additional federal and state filings should also be kept including things such as election for an S corporation or C corporation, filing for and employer identification number or EIN number, and additional filings such as license and tax filings.
Corporate bylaws should be in line with state and federal regulations and kept in the corporate book. The bylaws in simple terms are the corporate specific rules which the corporation should follow. The corporate book should also include a record of the initial organizational meeting in which the bylaws are adopted, officers are elected, and initial organizational activities are enacted and recorded.
Stock certificates adopted by the corporation should be contained in the corporate book. A stock transfer ledger should also be kept with records of initial and ongoing transfers of shares to shareholders.
Going forward, records of the annual meetings of the shareholders should be recorded and kept in the corporate book. These records should include meeting notices or waivers thereof, and meeting minutes including current shareholder records, records of important decisions, and records of voting of officers for the corporation. In addition to minutes of meetings of the shareholders, it is also good to keep minutes for board of director meetings in the corporate book.
Financial records and tax records should also be organized and kept for the corporation. This typically includes tax records, bank records, profit and loss statements, and balance sheets.
So, back to the original question regarding corporate record keeping – is it as daunting of a task as it is often rumored to be? If initial corporate records are organized and ongoing records are kept and organized as events occur, the record keeping is really not a daunting task. Issues however can arise when records are not kept up with and shareholders and/or officers try to formalize or organize a large amount of records at one time.
Keep in mind that corporate records are an important factor in maintaining the corporate veil and isolating shareholder liability from corporate liability. For questions or concerns regarding corporate record keeping and liability, feel free to reach out to Mentch Law.
Attorney Kirk E. Mentch, Esquire