Does My Family-Owned Corporation Need to Document Meeting Minutes?
It would probably not go over well for a large corporation like Petco to hold meetings and fail to record minutes. However, when you’re running a smaller company, especially if the business is held solely by family, it can be tempting to skip this sometimes tedious detail. In fact, 80 percent of corporations in the US fail to record minutes. Yet, even though it’s a common mistake, that doesn’t make it any less disastrous!
There are three primary reasons you should diligently record your company’s minutes – no matter how small or closely held it might be.
- Protect the “corporate veil”. Incorporating your business can protect your private assets from liability lawsuits. That’s part of the reason you chose to incorporate in the first place. By failing to keep corporate meeting minutes, each owner named in a lawsuit could be held legally liable for any damages. This puts your personal bank accounts, home, car, and other private property at risk.
- Avoid higher taxes. In an audit, a lack of adequate corporate records could cause the IRS to view you as a self-employed individual rather than a business. In many cases, being taxed as an individual will result in the assessment of higher overall income taxes.
- Keeping minutes is required by law. According to the California Corporations Code, all incorporated businesses must keep adequate records. This requirement does include minutes from all stockholder meetings. Your own bylaws might even require annual meetings. At the very least, unanimous written consents (signed by all directors) should be kept in records to back up any actions taken in lieu of an actual meeting. Violations of these rules can result in harsh penalties from the Department of Corporations.
With regard to formal minutes, the main thing to remember is that often no one misses them until they’re needed. You might feel that failing to keep these records is “no big deal”, since the issue has never presented itself before. However, in the event a dispute does arise, or the IRS decides to audit your company, or in various other situations, you could find yourself wishing you had kept minutes. As the saying goes, hindsight is always 20/20. Instead, have the foresight to keep adequate corporate records now, and you can protect both yourself and all shareholders from liabilities, excess taxation, legal penalties, and more.
Please contact our small business attorneys to discuss your specific situation.