Sweat the Small Stuff – Keeping Your Business in Compliance with Corporate Requirements
Thomas W. Hartmann
The Hartmann Law Firm LLC
TheHartmannLawFirm.com; [email protected]; 908 769 6888
Why Create a Corporation or LLC? One of the main reasons that businesses form corporations or limited liability companies (“LLCs”) is to protect the true owners from liability. For example, if a corporation or LLC is sued, the owners are not liable for a judgment – only the business entity.
Corporate Formalities are Critical. But, in order to achieve that, the business must comply with corporate formalities. This means that in the case of a corporation, a board must exist, meet and document its activities. Stock certificates must be prepared and tracked. Shareholder meetings must be held. Resolutions must be written out, signed and kept. The company must comply with its own by laws and articles of incorporation.
LLCs must keep track of ownership. They must comply with the New Jersey Revised Uniform Limited Liability Company Act, while also satisfying any operating agreement in place. An operating agreement is an agreement among the LLC members (owners) that sets out the way the LLC will operate. Absent this, the LLC must follow the rules in the Limited Liability Company Act.
In all cases, it is critical to segregate business assets, liabilities, income and expenses from personal matters.
What If the Company Ignores This? If the company or its owners ignore these obligations, the company and, more importantly, its owners, may lose the benefit of the “corporate shield” that insulates the owners from liability. Why – because if a lawsuit is brought, a court may well say that the owners used the corporation or LLC in name only and really operated it as individuals. If the party suing gets any hint that corporate formalities have not been followed, it will typically sue not only the business, but the business owners – exposing the owners' personal assets like homes, cars and bank accounts.
No Excuses. If you are running a small business or a family business, you may think this is unnecessary extra work that does not bring in customers or create revenue. You may think that all the partners or family members trust one another, so there is no reason to document things. Your time and energy are limited.
This is all true, but a court is not likely to accept these excuses. Moreover, the time involved in corporate compliance or working with a law firm to insure compliance is not excessive. It should be a part of your normal business housekeeping.
So, fill out the forms. Have board meetings. Write minutes. Keep them. Have shareholder meetings. Write out resolutions. Sign them. Keep them. Fill out stock certificates, stock ledgers or membership ownership ledgers.
The Hartmann Law Firm LLC can assist in these compliance matters to insure your business and your assets are protected. Beyond this, we can help guide businesses through issues ahead of litigation or aggressively advocate in litigation and business disputes should the need arise.