By Richard Nevins
Attorney at Law
If you have created a corporation, you have probably received many official-looking letters that appear to come from a state government agency. These letters cite the California state laws that require an annual corporate meeting and they cite the state laws regarding the problems facing your corporation if you fail to have a record of your corporation's annual meetings. These letters also include an offer to prepare the minutes of your annual meeting for a modest fee of $100 to $150.
The problem with these letters is that they are just advertising-through-intimidation. While it is true that all corporations are required to have an annual meeting of the shareholders and the board of directors, it is not true that the minutes of these annual corporate meetings have to be on file with some state agency. The annual meeting is not a public matter and the minutes do not have to leave your office files.
In a one-person corporation, having an annual meeting may seem like a waste of time, but it most definitely is not. All of the legal, financial and tax benefits of having a corporation are only available if the corporation is treated and recognized as a separate entity from the person, who created it. One of the greatest benefits of having a corporation own your business is that your family home and your personal property can be protected if there is anyone decides to sue your business. A properly formed and operated corporation is an important element in any asset protection plan.
The corporation's ability to shield you from personal liability is lost if the existence of the corporation is not documented. Under the law, a corporation has all the legal rights and protections of any human. However, since the corporation is not human, the only proof that is exists is based on its documents. The minutes of the annual meeting is one its most important documents.
During this meeting, the shareholders elect the board of directors, who in turn hire the corporation's president, vice-president, secretary and treasurer. All of the major actions taken by the corporation should be approved or ratified by the board of directors and described in the annual minutes.
If important tax matters are properly documented in the annual minutes, then the corporation has an additional level of protection if there is an audit by the IRS. The annual meeting should include participation of the company's tax-preparer, because some valuable corporate tax benefits are required to be documented before the end of the tax year. The company's business lawyer should also be requested to review prior actions and to assist with future plans.
Richard Nevins has been an attorney for 18 years. His law firm provides legal advice in estate planning and small business law. For more information, please visit his website at www.RichardNevins.com
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