The Drendel & Jansons Law Group provides corporate record maintenance for many dozens of corporations and LLCs from year to year for a flat fee. We also provide ongoing support and consultation for the business owners to guide them in maintaining the integrity of corporations and LLCs to avoid personal liability for business obligations.
Of particular importance is the corporate record maintenance.
A corporation operates as a liability shield for the owners (shareholders) because a corporation is considered its own “person” in the law. A corporation is considered its own legal entity capable of entering into contracts, incurring liabilities and making profits (so we hope) on its own, independent of the shareholders. The shareholders are only at risk for the capital they put into the corporation in exchange for their stock.
In order for a corporation to shield the owners (shareholders) from the liabilities of a business, the shareholders must carefully observe the formalities of doing business as a corporation. It is not sufficient merely to incorporate the business; the business must operate in every way as a corporate entity. Since a corporation is considered separate, and distinct from its shareholders, a corporation must act separate and distinct from its shareholders. That is true whether the corporation is IBM or Joe Smith Incorporated.
One of the primary ways a corporation acts seprately from its shareholders is through the corporate process. The Business Corporation Act provides the basic process by which all corporations are intended to act. Shareholders elect Directors. Directors appoint officers. Officers run the day to day business, which includes making routine decisions, signing checks, enterining contracts and so on. That is why legal documents for corporations are signed by the president. When the president of a corporation signs a document, it is not intended to be a document binding on the person who is the president; the document is intended to be signed by the president on behalf of (as a representative of) the corporation and binds the corporation.
The process of electing directors and appointing officers should take place every year, according to the Business Corporation Act. The election of Directors is done at an annual shareholders' meeting. The appointment of Officers is done at an annual Directors' meeting. This must be done even when there is only one shareholder who is also the only director and the only officer. If the business is incorporated, the business must operate like a corporation. If these formalities are maintained, the shield from liability that was intended will not be upheld by the courets. In other words, if the owner of the business that is incorporated does not operate the business as a corporation, the courts will ignore the corporate shell and hold the owner liable for the business debts and liabilities.
The Business Corporation Act allows for certain formalities to be handled in a streamlined manner for small corporations. For annual meetings and special meetings, notices must be sent, meetings must be held, votes must be taken and minutes must be kept, but there is an alternative procedure. The Business Corporation Act allows these things to be handled by unanimous written consent through shareholder and director actions in lieu of actual meetings.
Regardless of the size of the corporation, however, the corporate formalities must be observed and corporate records must be kept demonstrating that the formalities have been maintained in order to protect the integrity of the corporation and the protection from business liability that a corporation provides to its owners.
The same is true of limited liability companies (LLCs).