INCORPORATION GUIDE Topics:

Adhering to the Formalities of Operating a Corporation

Operating a corporation involves much more than just registering to add "corporation" to the end of your business name, and then doing business as usual. The liability protections, tax status and other provisions that are granted to your company through the act of incorporation can be challenged in court during a legal action, or can be stripped by the government, if you cannot prove that you have strictly followed the operations bylaws that were implemented when you incorporated your company.

Here is an overview of bylaws procedures that must be practiced and recorded to document the operations of your corporation. Review the exact bylaws that were voted on for your own corporation to make sure that there are no additional, or different, formalities that you must follow in order to bring your operations into compliance.

Board of Directors meetings must be scheduled at regular intervals and held.

Shareholder meetings must be scheduled at regular intervals and held.

Meetings, or meeting materials, must report on all aspects of the business, at least in a brief summary format.

The meeting agenda and meeting materials - including goals, operations reports, sales reports, etc. must be provided to Board members and Shareholders in time for them to read and evaluate the materials before meetings occur. Failure to provide sufficient information in the materials, or time to evaluate the materials, can be considered a breach of responsibility when operating a corporation.

There must be a defined protocol through which Directors or Shareholders can comment on meeting materials, or propose additions to materials well in advance of scheduled meetings.

Action items that are included in agendas must be voted on at meetings, or the minutes must document why the item was postponed or advanced to another meeting.

Meetings must run for a reasonable length of time, adequate for all questions relevant to the current agenda to be asked, debated and answered.

Directors or Shareholders of appropriate standing must have access to ask questions or make comments on agenda items as they are acquitted.

Minutes must be recorded for Board and Shareholder meetings.

The Board must hold regular meetings, or receive regular reports, from any outside advisors who provide services on a regular basis, such as accountants, lawyers, etc. And these reports, or minutes from these meetings, must be included in the Corporate Minutes.

Minutes from the previous Board or Shareholders meeting must be reviewed and approved at the next meeting.

By operating a corporation with adherence to these simple formalities, you can protect your business from any future legal challenge intent on piercing the corporate veil to make you, the owner, directly responsible for liability. Attending to these simple rules is a small price to pay to keep that protection intact.

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Information here does not constitute a legal advice. Please contact an attorney or accountant for specific expertise.

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