Protect Your Business with Corporate Minutes
It’s not always necessary to document the every day business decisions you make as a contractor. However, if your construction business is a corporation, it’s important to understand state requirements regarding shareholders’ and directors’ meetings and maintaining corporate minutes.
Corporate minutes not only provide a written history of the decision-making process concerning important business strategies, they can also be important in protecting your limited liability status should your company become involved in legal proceedings or a dispute with the IRS.
Corporate minutes describe how board members arrived at decisions. Essentially, the minutes record:
- The name of your company
- The date, time, and location of the meeting
- The name of the person who called the meeting to order
- The names and corporate titles of attendees
- Actions or motions
- Descriptions of decisions made, votes taken, and any abstentions from voting
- The time the meeting ended
Certain major business decisions should typically be documented in the corporate minutes. These include:
Observing the Formalities
- Stock: Note the issuance of shares to new or existing shareholders.
- Salaries and Bonuses: The board’s reasoning and approval of salaries and bonuses paid out to key employees can be helpful if the IRS ever challenges the reasonableness of the compensation.
- Purchases and Leases: Significant equipment or real estate purchases and leases should have the board’s approval.
- Financing: Corporate minutes should document decisions made in relation to loans the company gives or receives. Corporate loans to owners should be approved by the board and be supported by promissory notes.
In the face of a legal challenge, if you’re not following proper protocol, a court may decide your business isn’t being operated as a separate entity from the owner(s) — despite the existence of a corporation. That could lead to a legal decision to “pierce the corporate veil,” a term that means the personal assets of the owner(s) can be used to satisfy business debts and liabilities. Meeting state requirements regarding director and shareholder meetings is one way of keeping a corporation separate from its owner(s).
Corporate minutes can also help map out a plan for action items and help drive activities by executives and employees. You also can use them to review and measure your progress toward achieving certain goals.
As always, we are here to answer any questions you have.