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CARE AND MAINTENANCE OF A SMALL CORPORATION

    The principal reason for incorporating a small business is to insulate the owners, or shareholders from personal liability for the acts of the company. However, it should be remembered that incorporation is only the first legal step in this process. Once the initial paperwork is done, the owners must be careful to follow certain legal procedures and keep proper corporate records in order to maintain the shield form liability the corporation offers. The owners of small corporations often put off dealing with the various tasks required to properly run their new corporate entity.

    Neglecting to follow the proper legal procedures the in running care of your corporation is very risky. As a general rule, if you do not treat your corporation as a separate legal entity, a court is likely to do the same. If you fail to make and properly document important decisions of the corporation, it could result in you being personally liable for acts of the corporation. Another possible adverse consequence is that if you fail to document and support certain tax decisions, such as approving a federal or state tax election. you could lose those tax benefits.

    The most common failure in running a corporation is the failure to hold annual meetings of directors and shareholders. Annual corporate meetings are required under state law. It is also a good idea to hold special meetings whenever an important decision needs to be made like increasing the number shares of the corporation. If must, at a minimum, pay attention to certain legal formalities or a court can decide to disregard your corporate entity and hold you or shareholders personally liable for corporate debts and actions.

    Properly documenting key actions of the corporation by preparing formal corporate minutes (or written consents signed by directors or shareholders) is an important step in making sure that all shareholders and directors are given notice of major corporate decisions. These documents also create a paper trail can be used as proof that you complied with the law should any dispute arise with the IRS, creditors, or even other shareholders and directors.

    Another good reason for maintaining proper corporate procedures is that many government entities as well as banks, escrow and title companies, landlords and others the company will do business with may require a copy of the minutes of a board meeting or a resolution approving a corporate transaction, before you can obtain licenses, borrow money or rent property.

    It is very common for directors of small corporations to approve business transactions in which they have a financial interest. The preparation of proper corporate documents by an attorney will document that the was full disclosure to the board and shareholders of any potential conflict of interest and that these decisions were arrived at fairly.

    Holding corporate meetings does not involve a lot of time and having your attorney document them should not cost a lot of money. You can use e-mail or fax machines to send out notices of meetings. The meetings can be held through a telephone conference call or even in cyberspace, on a computer bulletin board or Internet Relay Chat.


A Final Word

    Mr. Koury's firm is a general civil and business litigation practice with an emphasis on liability defense. We specialize in civil litigation representing both individuals and businesses. We also act as general counsel to a number of small and medium sized businesses throughout the state. The firm caters to the needs of businesses by providing effective legal representation in a cost effective and efficient manner.


Copyright 1995-2012 by Attorney Ken Koury.