If you have a Corporation, chances are at some point you heard or read information about why you should incorporate your business. The most important reason is to separate your personal assets from your business assets. Corporations are considered a first line of defense. Another reason is the tax benefits. There are numerous deductions available to Corporations that are not available to Sole Proprietorships, for example.
But here’s the thing- if you have not taken the steps to complete certain corporate formalities, your assets are like low hanging fruit just waiting to be picked.
Hopefully your business will never be sued or have to endure an IRS audit. We assure you it is not our intent to frighten you with this post. We simply want to remind you again about these formalities as a preventative measure.
Let’s review a couple of these formalities:
Issuing Stock– Perhaps you and family members or friends are “said owners” of the business. However, did you prepare the Resolution(s), fill out stock certificates and document it in your corporate records? If not, you could have a serious problem down the line.
Here’s why- if your business is sued and there’s no formal record of having issued stock, you have given the court evidence to rule that it’s not a “valid Corporation”. A valid Corporation would have shareholders. If it’s not valid, how can you argue that a corporate veil exists?
SPECIAL NOTE: Nevada allows you to issue stock for services, property, capital, real estate or anything! It’s up the Directors of the Corporation to decide. Per the Secretary of State “their decision is final”.
Maintaining Corporate Records– Keeping your corporate records updated is a must for preserving the corporate veil. Your corporate records are like the “life story” of actions that were of major business consequence to the Corporation. The Directors and Officers are merely conducting business on behalf of the Corporation and the records should reflect this.
For example, have you taken out a business loan? If so, the Corporation should have held a Special Meeting to discuss taking out the loan. Minutes of the meeting should have been prepared, signed and placed in the Corporate Record Book. This helps prove it was the Corporation and not you personally that decided to take out the loan.
If your business is involved in a lawsuit and you have no corporate records, a court can determine that the Corporation was simply an “Alter Ego” of yourself; that is was not acting like a true Corporation; therefore, the corporate veil may be pierced.
We often hear “It’s a one-man operation. It’s just me so I don’t need a record book”. You still need to keep records even if it’s just you.
IRS Audits and Corporate Record Keeping
According to Sara Zaro, EA with Elite Bookkeeping & Tax Services,
“When the IRS conducts an audit on a Corporation, they will ask for the corporate record book. If you don’t have current records, the IRS can determine that your business is operating as a Sole Proprietorship and change the tax rules. In some cases it has cost the business thousands of dollars.”
You should consider your tax benefits as an asset that also needs to be protected.
Additional Note: While LLC record keeping isn’t quite as stringent, it is recommended that you still maintain similar-type records for anything of major business consequence.
If you have not tended to these formalities, you should do so now. The longer you wait the more challenging it will be to catch up.
We can provide you with a Corporate Record Book and assist with updating your records. Just give us a call and we’ll be happy to help.
Corporation Annual Minutes
Find out more about American Corporate Enterprises by visiting our website at https://americancorpenterprises.com. At American Corporate Enterprises, Inc., we have the expertise to handle all your incorporation needs! Contact us Toll free (888) 274-1130 or (775) 884-9380 today.
Toll free (888) 274-1130 or (775)884-9380 today and visit our website at www.americancorpenterprises.com.