A for-profit entity jeopardizes losing the very protections it gains as a registered entity of the state by disregarding corporate formalities, which are those requirements a company must follow to be legally compliant as a registered company in the state.
Additionally, depending on the type of entity, failure to comply could subject officers, shareholders, directors, or members to individual liability. Maintaining corporate formalities should be a way of doing business and incorporated into a company’s policies and procedures.
Warner & Associates recommends that you develop a compliance checklist and review it on a periodic basis. Here are suggested items for your checklist:
- Hold annual board of directors’ and shareholders’ meetings (corporations), and additional meetings as required by your governing documents (corporations, LLCs, partnerships, and other types of entities).
- Maintain a registered agent and office and if such information changes, file a statement of change of registered agent and/or registered office with the Secretary of State.
- Review and amend bylaws on a periodic basis.
- Keep an accurate and correct stock book.
- Hold regular meetings and maintain a minute book.
- Prepare and adopt corporation resolutions for major decisions and actions of the officers or management (for example, the election or appointment of officers and/or directors, authorization of a contract, issuance or selling of stock, hiring or dismissal of employees, approving the sale of company assets, or authorizing a major transaction or merger).
- Amend the Certificate of Formation as necessary (for example, when a corporation exchanges, reclassifies, or cancels issued shares’; to change the name and/or address of the registered agent, etc.).
