Corporate Minutes: Why are They so Important?
Tracking corporate minutes is an essential, yet often overlooked, aspect of maintaining a corporation. Unfortunately, there’s a misconception that maintaining your corporate minutes is voluntary or only for personal-use. Even more astoundingly, some corporation owners have never even heard of corporate minutes. This is rather problematic. Keeping detailed corporate minutes is not only legally-mandated, but it’s also in the corporation’s best-interest, as minutes are the first line of defense when it comes to maintaining a ‘corporation’ status. So what exactly are they?
Corporate minutes are written accounts of business-related meetings, agreements, or conversations. They are written and time-stamped during (or immediately following) a meeting. They typically include in-depth information about the purpose of the meeting, where and when it took-place, who was in-attendance, topics discussed, and any other major business decisions.
Some groups estimate that around 80% of U.S. corporations fail to keep detailed and accurate corporate minutes. If these minutes are of such importance, why are they consistently neglected by corporation owners? Truthfully, some corporations intentionally disregard corporate minutes because they can be inconvenient or time-consuming to maintain. However, many times it simply comes down to unawareness.
This is unfortunate, because a corporation’s minutes are considered important legal documents that can be used to legitimize their status as a ‘corporation’. If a corporation is under investigation, the minutes will be requested to determine if the business is indeed complying with state and federal laws. If there are no minutes to offer investigators, the ‘corporation’ status can be revoked which will have long-term implications on tax structuring and liability.
Why Should You Incorporate?
Businesses come in many varieties, the type of which is determined by the owner. When we say “type of business”, we aren’t talking about the type of work or service they provide, but rather the type of legal entity through which they choose to run their operation.
This is referred to as a “business entity”, and a corporation is one of the more common models (other entities include Non-Profits, Sole-Proprietorships, LLCs, and Partnerships). The differences between these business entities mostly comes down to taxes and liability, as the U.S. Small Business Association explains,
“The business [entity] you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.”
The main advantage of a ‘corporation’ status is that it separates the owners’ personal liability from the liabilities associated with the business (for instance, a lawsuit brought against the corporation cannot affect the owner’s personal assets like their home or their personal savings). Likewise, corporations are taxed differently at the federal-level, and oftentimes at the state-level as well. The cost to declare a corporation is relatively high, however, it’s typically worth the additional legal protections and increased tax flexibility.
Corporate Minutes can Protect your ‘Corporate’ Status
Designating your business as a ‘corporation’ certainly comes with its advantages, however, corporation owners are required to obey a number of formalities, such as thorough record keeping and reporting (ie. keeping corporate minutes). Failure to maintain these records can lead to revocation of ‘corporation’ status, thus loss of asset security, personal liability protections, and specialized taxing.
Detailed and accurate corporate minutes are your first—and perhaps best—line of defense. Not only do they prove that your corporation is legitimate, they evidence the workings and progression of your business’ day-to-day operations (not to mention, you are legally required to maintain them). In a situation where your business is under investigation, for example, by the IRS, detailed corporate minutes can single-handedly resolve the situation.
If they are so important however, why do some owners intentionally choose not to keep them? In reality, corporate minutes are legally powerful documents, but they are awfully burdensome to maintain. Even smaller corporations may have multiple meetings per week, not including the casual conversations that might be worth documenting. Writing, typing, and filing all of these business-related interactions is undoubtedly inconvenient and time-consuming.
The Bottom Line
Maintaining corporate minutes ensures that company assets are protected, that your personal liability is disassociated from company legal matters, and that the business is eligible for flexible taxing options. Many companies opt to consult a corporate lawyer to help compose, organize, and file their corporate minutes. This ensures that all minutes contain only the pertinent information and that they’re legally compliant with federal regulations.
Remember, maintaining corporate minutes is the law. In other words, they are not optional. They are important legal documents that can be used to substantiate the legitimacy of your cooperation. In the event of an investigation, failure to log this important information can (and often-times does) lead to loss of corporate status and increased risk for your business and your personal assets.