As published in the Naperville Sun – December 2, 2009
The work of an entrepreneur is never done. Along with running the day-to-day of the business, an entrepreneur must find new clients, come up with creative marketing programs, and maintain the business’s corporate status. The tasks associated with starting a business, including incorporating the business, can easily overwhelm any entrepreneur. However, maintaining the corporate status of a newly formed corporation cannot be overlooked.
As a responsible entrepreneur, you have consulted with your attorney and accountant to determine the proper entity for your business that will limit your personal liability and shield your personal assets. If you incorporated your business as either an S or a C corporation, your responsibilities do not end when you file the paperwork and pay the appropriate fee to the secretary of state. In fact, you will need to comply with several corporate formalities to maintain the liability protection you so wisely created in forming a separate entity.
These formalities include: having annual shareholder and board of directors meetings, maintaining a corporate minute book, and keeping corporate and personal funds separate. For example, all significant corporate actions must be approved by the board of directors via the annual meeting or by specific corporate resolution. Significant corporate actions include: new officer appointments, board or officer compensation adjustments, opening new corporate bank accounts, committing the corporation to a contract that is not in the regular and ordinary course of business and committing the corporation to a significant financial commitment.
It is imperative that you memorialize your corporation’s actions and the minutes from all shareholder and/or board of director meetings in its corporate minute book. This will provide you a complete record of corporate activities in the event of an audit or lawsuit.
It is also important to maintain separate personal and business bank accounts. You cannot treat corporate funds as your own funds and should not use corporate funds for personal expenses. Any such co-mingling of funds could cause a forfeiture of corporate status for your business. Remember that you and your business are separate entities in your eyes, but you must also take the appropriate steps to ensure the eyes of the law see the separation, too.
You wisely took the time to incorporate your business. Now it is essential that you maintain that corporate status by taking the time and the necessary steps needed to protect its ongoing status. As always, you should consult with your attorney regarding any concerns about corporate formalities and how your actions may impact your business’s corporate status.
