The Importance of Keeping Good Corporate Records
By Michael J. Hamblin
One resolution that every business should make (and keep) is to prepare and maintain good corporate records. The reason for this is really quite simple. Records are an essential part of any business enterprise. Yet, many businesses fail to keep even minimally adequate records. This can have potentially disastrous effects, not only from a practical operational standpoint, but also from a legal standpoint.
From a legal standpoint, it is essential that good and regular corporate records be kept. For corporations, these records should include the company’s formation documents, bylaws, minutes of shareholder or director meetings, and any necessary or advisable shareholder or director consents to corporate actions that are taken without a meeting of shareholders or directors. All of these documents should be kept in a central minute book for safekeeping and ease of access. For other types of business entities such as LLC’s, there may be different (and less strict) requirements for preparing and maintaining corporate records. But, it is still important for these entities to keep good records. For example, every multi-member LLC should have a written operating agreement, and, depending on the specific type of company action, may wish to have important events memorialized by minutes of member meetings or consents if a meeting is not held regarding a particular company action. Many LLC’s opt to keep their records in a formal minute book as well.
These kinds of company records should be prepared and maintained contemporaneously with the events that they document. Failure to do so could create a whole host of practical and legal problems. For example, parties to a business or loan transaction may decide to not pursue the deal if they find shoddy or nonexistent company records during the due diligence process. Even worse, if proper legal records are not properly maintained, it may be possible for the “corporate veil” to be pierced in litigation and for the owners of the company be held personally liable for the company’s debts and obligations.
If a company finds that it has not been keeping good corporate records, corrective action should be taken immediately. So long as the proper steps are followed, it is usually possible to correct incomplete company records. But, delay is not your friend. And, of course, competent legal counsel should be involved to make sure that all of the legal requirements are met.
Michael J. Hamblin is an attorney at Frank Haron Weiner, and focuses his practice on a wide range of litigation and transactional business law matters.
One resolution that every business should make (and keep) is to prepare and maintain good corporate records. The reason for this is really quite simple. Records are an essential part of any business enterprise. Yet, many businesses fail to keep even minimally adequate records. This can have potentially disastrous effects, not only from a practical operational standpoint, but also from a legal standpoint.
From a legal standpoint, it is essential that good and regular corporate records be kept. For corporations, these records should include the company’s formation documents, bylaws, minutes of shareholder or director meetings, and any necessary or advisable shareholder or director consents to corporate actions that are taken without a meeting of shareholders or directors. All of these documents should be kept in a central minute book for safekeeping and ease of access. For other types of business entities such as LLC’s, there may be different (and less strict) requirements for preparing and maintaining corporate records. But, it is still important for these entities to keep good records. For example, every multi-member LLC should have a written operating agreement, and, depending on the specific type of company action, may wish to have important events memorialized by minutes of member meetings or consents if a meeting is not held regarding a particular company action. Many LLC’s opt to keep their records in a formal minute book as well.
These kinds of company records should be prepared and maintained contemporaneously with the events that they document. Failure to do so could create a whole host of practical and legal problems. For example, parties to a business or loan transaction may decide to not pursue the deal if they find shoddy or nonexistent company records during the due diligence process. Even worse, if proper legal records are not properly maintained, it may be possible for the “corporate veil” to be pierced in litigation and for the owners of the company be held personally liable for the company’s debts and obligations.
If a company finds that it has not been keeping good corporate records, corrective action should be taken immediately. So long as the proper steps are followed, it is usually possible to correct incomplete company records. But, delay is not your friend. And, of course, competent legal counsel should be involved to make sure that all of the legal requirements are met.
Michael J. Hamblin is an attorney at Frank Haron Weiner, and focuses his practice on a wide range of litigation and transactional business law matters.