When you started your business, your lawyer or prior business experience led you to form a corporation or an LLC for a couple of very practical reasons:
For start-ups or businesses entering into new banking, borrowing or vendor relationships, banks and others might well require that one or more of the stockholders personally guarantee some of the business' obligations.
However, as the years go by, many banks will waive personal guarantees, as will vendors, landlords and others who extend credit to your business.
Despite all these excellent intentions at protecting themselves from personal liability, an overwhelming majority of small businesses conduct themselves in a manner that wipes out any prospects of the stockholders being protected by the corporate shield.
To retain the protection of your corporate or LLC structure, you must conform to some rather simple standards including: Openly and conspicuously displaying and using the complete business name including acronyms such as Ltd, Inc, Incorporated, LLC, etc.
to provide public notice as to the structure of your business.
This means using it on business cards, envelopes, stationery, invoices, signage, website, basically everywhere you mention your business' name in writing.
If you conform to this, a creditor will not be able to effectively argue that they were denied the knowledge that you were not personally responsible.
Conforming to requirements set forth in the original paperwork in your incorporation or LLC formation documents, which will typically include:
In addition, when you go to sell your business, whether as a Stock or an Asset Sale, in almost all instances (absolutely certainly in a Stock Sale) the buyer and/or his legal counsel will want to see these records.
If you don't have these records, you might want to give some serious thought to going back over the years and reconstructing the dates, times and events so that they can be memorialized.
While you are doing this, you should also make certain that your Stock Certificate Ledger is up to date (indicates who owns what shares), and also verify that you know exactly where your shares of ownership are located.
The foregoing is not intended to provide legal advice, but is intended to make you aware of the importance of these issues.
If you are not up-to-date and current, hopefully it will inspire you to take such actions as you deem advisable (including contacting your attorney) to get and stay current.
- Your business' structure can provide some tax deductibility that would not otherwise be available if you just operated as a sole proprietorship.
- A corporation or LLC, and some forms of partnerships, can provide you with 'limited liability' (i.
e.
a 'corporate shield' that means you cannot be held personally liable for the debts of the business).
For start-ups or businesses entering into new banking, borrowing or vendor relationships, banks and others might well require that one or more of the stockholders personally guarantee some of the business' obligations.
However, as the years go by, many banks will waive personal guarantees, as will vendors, landlords and others who extend credit to your business.
Despite all these excellent intentions at protecting themselves from personal liability, an overwhelming majority of small businesses conduct themselves in a manner that wipes out any prospects of the stockholders being protected by the corporate shield.
To retain the protection of your corporate or LLC structure, you must conform to some rather simple standards including: Openly and conspicuously displaying and using the complete business name including acronyms such as Ltd, Inc, Incorporated, LLC, etc.
to provide public notice as to the structure of your business.
This means using it on business cards, envelopes, stationery, invoices, signage, website, basically everywhere you mention your business' name in writing.
If you conform to this, a creditor will not be able to effectively argue that they were denied the knowledge that you were not personally responsible.
Conforming to requirements set forth in the original paperwork in your incorporation or LLC formation documents, which will typically include:
- Electing Officers - Not only does this need to be done, but it needs to be documented with minutes commemorating the event.
Plus these need to be filed in the Minute Book. - Holding Annual Meetings - Meetings require giving notices and also require minutes of what discussed, what decided, etc.
, all of which need to be recorded in your Minute Book.
The same requirements apply to Special Meetings and Resolutions (see below). - Having Resolutions that cover significant business events.
In essence, when the business borrows money, loans substantial amounts of money, enters significant lease agreements, buys significant amounts of equipment, or disposes of material amounts of assets, enters into significant contracts, or any other substantive action, the decision needs to be memorialized by a resolution showing the date, who attended, who voted and the agreed upon course of action.
These resolutions need to be filed in your Minute Book.
In addition, when you go to sell your business, whether as a Stock or an Asset Sale, in almost all instances (absolutely certainly in a Stock Sale) the buyer and/or his legal counsel will want to see these records.
If you don't have these records, you might want to give some serious thought to going back over the years and reconstructing the dates, times and events so that they can be memorialized.
While you are doing this, you should also make certain that your Stock Certificate Ledger is up to date (indicates who owns what shares), and also verify that you know exactly where your shares of ownership are located.
The foregoing is not intended to provide legal advice, but is intended to make you aware of the importance of these issues.
If you are not up-to-date and current, hopefully it will inspire you to take such actions as you deem advisable (including contacting your attorney) to get and stay current.