We’re quickly coming to the end of 2015, and as the end approaches, now would be a good time to take care of your small business. If you own a small business, you should have your business incorporated into some sort of legal entity, whether it be a corporation, limited liability company, or something similar (you do have your business incorporated, don’t you? If not, see me). Throughout I’ll refer primarily to corporations, but most of this information holds true for LLCs as well.
Your business’s corporate entity should be relatively low maintenance; however, periodically, you should check up on it. Now would be a good time to perform these tune-ups for your small business corporation:
1. Have a meeting. For corporations especially, but even for other entities like LLCs, having a properly documented corporate meeting is very important. An annual meeting gives the owners of the company the right to discuss any changes in officers or directors, the right to formulate new policies, and the ability to formally put into written record actions that were taken during the year by the corporation—even if you are the sole shareholder, officer and director. The word “formal” is important, because corporate meetings are a formality. You set up your corporation presumably to provide yourself some personal liability protection. Plaintiffs’ lawyers would love to break through your corporate shield to get to you personally—a legal maneuver called “piercing the corporate veil.” One way in which lawyers can successfully pierce the corporate veil is when the corporation has failed to follow standard corporate formalities—including holding annual corporate meetings and keeping minutes of them.
Meetings do not have to be formal affairs, and they can even be very brief. I’ve even attended the corporate meeting of a family corporation that we held in about five minutes in their office. Often, for my clients, I prepare a template set of meeting minutes which clients can thereafter use at their annual corporate meetings. It provides sort of reminders for what minimum business should be discussed at the meeting, and provides blanks for the substantive terms to be manually filled in: votes of the shareholders for the directors; votes of directors for officers; votes to pay bonuses, etc. It may seem silly to go through these formalities—especially if you’re a one-person corporation—but this formality may be what helps protect your personal assets from corporate liability in the event of a lawsuit.
2. File your annual report. Most jurisdictions in which a corporation is registered will require an annual report and some fee be filed. In North Carolina, the annual report is pre-populated with the data from your last annual report, and can be filed online. In other words, annual reports have become very easy to file. Furthermore, in North Carolina, the Secretary of State’s office has gotten much better about providing reminders to file annual reports. The downside of this is that the Secretary of State’s office has also gotten much more aggressive about administratively dissolving the corporation if an annual report hasn’t been filed. In previous years, a corporate owner could neglect to file annual reports for a number of years prior to the state dissolving the corporate entity. Now, the state threatens to dissolve upon the first failure to timely file an annual report. Annual reports are both easy to file and easy to forget to file. I filed an annual report the other day and it took me fewer than five minutes to file. If you fail to file and your corporation is administratively dissolved, all is not lost—the state has a process to get your corporation reinstated, though that often requires the payment of additional fees. Most importantly, however, during the period your corporation has been administratively dissolved, you’re operating without the benefit of corporate protection—and it may turn out that certain contracts your corporation entered into during that period would not be binding on the other party.
3. Review your corporate records online. While you’re on the website for the Secretary of State, take a brief moment to review the state’s information for your corporation to determine if it is still accurate and up to date. Are your resident agent and registered office address current? If not, you may not be receiving important legal documents directed to your corporation’s attention. Has an officer been removed but is still being shown online? This could create the risk that the removed officer could still attempt to pose as an official of your corporation, against your wishes. Most corporate registrars have very simple (and often online) forms to fill out to correct outdated corporate information. Take the time to make your information up to date.
To keep your business running like a machine, you need to perform an occasional diagnostic and tune-up. Take this time at year’s end to briefly tune up your corporation or LLC. And if you need further advice, please call The Deaton Law Firm, PLLC, for an appointment.