Having a separate business is not enough to protect your personal assets from your business identity. You must continue to establish your business on paper as its own separate entity so that your liability is protected. If you do not do this, you are in danger of “piercing the corporate veil.” This means that you could be sued personally for your business’ liabilities if you neglect to maintain your business as an entity completely separate and apart from your personal identity.
There are many, many ways to maintain corporate formalities in order to reduce the risk of “piercing the corporate veil.” This article discusses one aspect of protecting your liability — holding regular meetings. A purpose of a meeting is to continually establish the entity as its own separate legal entity. Therefore, it is important that business owners hold meetings regularly. This is true even if there is only one member of the company or shareholder of a corporation.
Business owners should regularly hold meetings and document major decisions. Meetings are also opportunities to address issues that may impact the entity. Meetings should be called annually, to reaffirm the entity’s separate status. They should also be called if there are any changes to the operating agreement for LLCs or bylaws for corporations. This could include:
- Changes in the principal place of business
- Changes in services that the entity provides
- Capital contributions
- Irregular distributions
- Changes in members (for LLCs) or shareholders (for corporations)
- Changes in what authority members or shareholders have
Meetings also must be hold when the bylaws (for corporations) or operating agreement (for LLCs) specify — for example the second Tuesday of December. Minutes should be kept at all of these meetings so that there is a paper trail and proof that these meetings took place.
If you need help understanding when to have a meeting, how to document a meeting, or any other question about LLCs or Corporation, call today for a consultation.