Entrepreneur’s Question on Corporate Housekeeping
After your company has been incorporated, you will have certain corporate housekeeping and recordkeeping duties for the proper governance and maintenance of your Corporation.
One of the key reasons to incorporate is to protect your personal assets from your company’s Creditors and to keep your business and personal lives separate. In order to maintain this important Limited Liability Protection, you will need to keep your eye on these corporate housekeeping and recordkeeping matters, so that the company’s Creditors do not “pierce the corporate veil” and go after your personal assets.
Below is a summary list of some of the key corporate housekeeping and recordkeeping tasks that you should have on your company’s radar:
Annual Meetings. At a minimum, your company will need to hold an Annual Meeting of Stockholders to elect the Directors and an Annual Meeting of Directors to appoint the Corporate Officers (i.e., Chief Executive Officer, Chief Financial Officer, and Corporate Secretary). These Annual Meetings also can be used to approve any other corporate matters (see below) that the Board of Directors and the Stockholders may need to handle at that time. If your company is a Privately-Held Company with a limited number of Stockholders, then we recommend holding these Annual Meetings on paper via Written Consent.
Alternatively, if the Annual Meetings are held in person, then the company must meet the formal meeting notice and quorum requirements for each meeting and prepare written minutes of the meeting proceedings – which involves more formalities, more work, and more cost.
Regular Meetings. Depending on the activities of your Corporation, the Board of Directors and Stockholders may need to approve certain corporate activities throughout the year. The Board typically will need to approve any Financing transactions, any issuance of Securities (debt or equity), the creation of a Stock Option Plan, the grant of each Stock Option, the appointment of officers, major contracts, the amendment of key corporate documents (e.g., Articles of Incorporation or Certificate of Incorporation, Bylaws), and Mergers and Acquisitions transactions involving the company.
Similarly, you may need to seek Stockholder approval for certain Financing transactions, the formation of a Stock Option Plan, the amendment of key corporate documents (e.g, Articles of Incorporation or Certificate of Incorporation, Bylaws), and Mergers and Acquisitions transactions involving the company. If possible, you should try to handle these corporate approvals with Written Consents to save time and money.
State Taxes. As a Corporation, your company annually will owe Franchise Taxes to the state of its Incorporation. Also, if your company is qualified to do business as a Foreign Corporation in states other than its state of Incorporation, then it will owe similar Franchise Taxes in those states. For example, if your company is a Delaware Corporation that is qualified to do business in California as a Foreign Corporation, then your company will pay these Franchise Taxes annually to Delaware and California.
State Filings. Many states require that your company report certain corporate information with the applicable Secretary of State. For example, the California Secretary of State requires that each California Corporation (or Foreign Corporation qualified to do business in California) prepare and file an annual Statement of Information in order to update basic corporate information, including the name and address for each of the three principal Corporate Officers (i.e., Chief Executive Officer, Chief Financial Officer, and Corporate Secretary) and each Director.
Keep it Clean to Avoid Cleaning Up. With some planning and a little outside help, you will not have a problem keeping your corporate house in order. In addition to the important Limited Liability Protection mentioned above, a “clean” Corporation will help facilitate major transactions that your company may have in the future, such as Financing and Mergers and Acquisitions deals. The corporate cleanup process can be very costly if you have not done a good job with the corporate housekeeping, and is certainly more expensive than proper blocking and tackling as you go. Stay on top of the corporate housekeeping and recordkeeping, so that your company is ready to move ahead quickly when the right deal presents itself.
Please let us know how your company has kept its corporate house in order (or not – you know you are out there!) and the resulting benefits or adverse consequences that you have experienced.