Tuesday, July 28, 2009

Quicktip: What to Do with Your “Corporate Book”?

Back when you formed your corporation or LLC, you probably received a black, three-ring binder with official looking papers and stock certificates. The binder often has a fancy cover and may even have your company’s name embossed on its edge. This binder is your Corporate Book.

It’s been our experience that many entrepreneurs, especially those who bootstrap and organize their business using a low cost legal service, simply put the book as is on a shelf where it collects dust and (frequently) gets misplaced.

Regardless of whether your corporation has one shareholder or hundreds, it is your responsibility to keep a meticulous record of the activities of your corporation. This is part of the process maintaining the “corporate formalities” required to demonstrate that your business is the real deal and not just a sham. These records become very important if your business ever ends up in court and your adversaries try to hold you personally responsible for business activities and debts by questioning the legitimacy of your corporate entity.

We recommend that our clients—even one man armies--have their board of directors approve in writing all material action that is outside the ordinary course of their businesses (like leasing new office space or issuing equity ownership). The written record of the board’s decision is then filed in the company’s Corporate Book.

If your corporate existence is ever called into question, a well maintained Corporate Book will serve as significant evidence that your business is legit.

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