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Corporations are legally required to hold an annual shareholder meeting and board of directors meeting. These meetings need to be documented in a minute book, which acts as a formal record of the corporation’s governance and decisions. While maintaining minute books might seem like an insignificant task, they are one of the most critical pieces of documentation for a corporation.
Why Are Minute Books So Important?
Minute books are essential for ensuring the corporation adheres to legal and regulatory requirements. They serve as evidence that the corporation is following proper procedures, which can protect the business and its shareholders in legal matters.
Even in cases where there is only one shareholder or director—as in a small, closely held corporation—the law does not exempt you from holding an annual meeting or keeping an updated minute book.
Protecting Yourself from the Court “Piercing the Corporate Veil”
One of the major benefits of forming a corporation is limited liability. This means that, generally, shareholders are not personally responsible for the corporation’s debts or legal liabilities. Their risk is limited to the amount they’ve invested in the corporation, and their personal assets—such as their home, car or bank accounts—are protected.
However, if a corporation fails to follow certain formalities, courts may decide to “pierce the corporate veil.” Piercing the corporate veil means that shareholders could be held personally liable for the corporation’s actions or debts. In other words, the court ignores the legal distinction between the corporation and its shareholders, putting the personal assets of the shareholders at risk.
How Failing to Maintain Minute Books Puts You at Risk
One of the most common reasons a court may pierce the corporate veil is the failure to properly maintain corporate records, especially the minute book. If your minute book is outdated or incomplete, the court may conclude that the corporation is not being treated as a separate legal entity from its shareholders. This could have serious consequences.
Avoiding Personal Liability
To preserve the protective barrier between the corporation and its shareholders, it is crucial to keep the minute book up to date.
Some practical steps for maintaining your minute book include:
- Holding annual shareholder and directors meetings.
- Recording minutes of these meetings in detail.
- Documenting significant corporate decisions.
- Keeping a record of any resolutions passed.
To make it easy for our clients to maintain their minute book, Deka Law Group offers a template for minutes of the annual meeting of shareholders and minutes of the annual meeting of directors under the resources tab on our website.
If you’re unsure whether your corporate records are in order or need help updating your minute book, don’t leave it to chance. Contact the experts at Deka Law Group for guidance and support. We’re here to help you protect your business and preserve the legal protections your corporation provides.
