In advising hundreds of closely held companies over the years, one of the things I often recommend to clients is a corporate clean up. What’s a corporate cleanup? It’s a term used to describe the process of taking a deep dive into a company’s organization or incorporation documents, bylaws or operating agreement, and other records and contracts and doing somewhat of an internal audit. It’s a crucial step if you are looking to sell your business, or simply want to engage in best practices to be ready for an audit, insure against shareholder disputes and generally get your house in order.
Business owners are too busy running their business, especially when first starting out – they are focusing on strategy, marketing, developing a product or providing a service. They often don’t have the resources to make sure these items are in place, or they simply slip through the cracks.
One of the most important reasons for conducting business within a legal entity, such as a corporation or LLC, is to maintain limited liability. One of the keys of maintaining the limited liability and avoiding the piercing of the corporate veil is keeping the corporate formalities in place.
Every company should have the following in place and kept among the records:
- Articles of Incorporation or Articles of Organization
- Bylaws or Operating Agreement
- Annual minutes of shareholders
- Meeting minutes of the board of directors
- Shareholder Agreements
- Copies of the company’s tax elections
- Resolutions documenting major decisions
It’s important to maintain these documents so that the veil separating a corporation and its shareholders stays in place and protects the company’s owners from being liable for the company’s actions.
If you would like to assess whether your company has what it takes in place, or discuss whether you need a corporate clean up, please contact us.
