Corporation owners are required to maintain corporate records, including documenting major corporate decisions, as well as hold meetings of shareholders and Board of Directors. If these formalities are neglected and the company has legal problems, shareholders could be held personally liable for corporate liabilities if a court finds the proper formalities were not followed and disregards the corporate status.
Shareholders, directors, officers and employees all have different legal roles to play within the corporation:
Shareholders
Shareholders have the right to:
- Amend bylaws and articles of incorporation
- Elect and remove directors
- Approve reorganizations and/or mergers
- Approve the sale of corporate assets
- Dissolve a corporation
Typically, shareholders are required to hold an annual meeting, although many states allow shareholders to meet this requirement via a “consent resolution” or “written consent” signed by all shareholders instead of holding a meeting where all must be present in person.
Directors
Members of a corporation’s Board of Directors make the major financial decisions for the company as well as set policy. Directors are also responsible for:
- Electing corporate officers
- Issuing stock
- Setting salaries and bonus guidelines for officers and key employees
- Approving loans
- Managing the corporation’s real estate assets
Most states require directors to have regular meetings, which can be via phone or by signing a written consent or consent resolution.
If a corporation is small and shareholders fill the roles of directors and officers, the corporate formalities must still be observed to maintain the corporation’s liability protection status.
Officers
The responsibility for the corporation’s day-to-day management and operation rests with the officers. At a minimum, a corporation must have a president who typically serves as chief operating officer, a secretary who is responsible for the corporate records and a treasurer (or chief financial officer) who is responsible for the company’s finances.
Required Documentation
While routine business decisions do not necessarily have to be documented, there are a number of situations that require the proper documentation in order to preserve the corporate status of a company, including:
- Annual meetings of shareholders and directors
- Stock issued to new or existing shareholders
- Real estate purchase
- Real estate lease
- Authorization of a loan or line of credit
- Retirement and stock option plans
- Decisions made regarding federal or state taxes
By documenting these key corporate decisions, your limited liability protection will be preserved, thus protecting the personal assets of shareholders and directors.
Johnson Legal PC specializes in business and corporate law and can assist your organization in achieving its full potential. Contact us to learn more about how a great corporate attorney can help your business thrive.
