Every year, many business owners choose to incorporate their companies. They may make this decision early on, or they may come to it later because their business is growing and they want protect yourself from risks facing growing companies. Either way, business owners want to limit the extent to which their personal assets are at risk, should something damaging (usually a lawsuit) come up. It’s a smart move.
However, what entrepreneurs often don’t focus on is the fact that, by joining, they have brought a new entity in the world Much like giving birth to a child. The company now has a independent existence that can literally outlast you. The business has needs separate and apart from yours (such as the need to be able to pay its own bills in addition to paying you). And if you don’t treat the corporation properly as an independent “being,” you may be stripped of the privilege to protect yourself and limit your personal liability (such as children, in certain extreme situations, can be removed From his parents).
In order for a corporation – any corporation, no matter how large or small – to retain its special limited liability status, it needs observe certain formalities and take certain actions. These “paperwork” include (among other things) the issuance of stock, the election of officers and directors, the maintenance of corporate records, the proper capitalization of the corporation, and, clearly, the separation of personal and corporate funds. When a corporation does not do these things, its limited liability status is open and vulnerable to attack creditors who may allege misconduct or fraud. In legal parlance, this is called “piercing the corporate veil.”
Phew! Sounds like a lot, especially for a one-person corporation. At first, it seems a bit awkward and artificial. But it is not difficult. Think of keeping corporate records, keeping minutes of your “meetings” simply as the corporate way of “covering your @#%”. Minutes are also useful when there is more than one owner of a business, so there is a written summary of the discussion, actions taken, and how the owners voted. To maintain its limited liability shield, it must be clear that the corporation officially has authorized its officers and directors take meaningful action on your behalf. How do you know when a corporation has done it? Because there are written minutes of a meeting (or ratifications of these actions), kept on the books of the corporation!
What is greater? What is ordinary?
Therefore, written records of important decisions are vital. But what kind of problems are considered important? Celine groaned, “Does this mean I have to make a written record every time I go to Staples for pencils? Or take a potential client out to lunch?” Certainly not! Here is a general rule: if the transaction is the type of transaction that your business engages in over and over again as your main business, then that transaction is “in the ordinary course of business” (“OCB” is the legal jargon acronym) and does not need to be documented. So Celine, who is a life coach, doesn’t need to document herself every time she signs a deal with a new client. Or Bob, a bookstore owner, doesn’t need to write minutes for every sale of a book on his shelves.
But there is a second part of the general rule. If the corporation is doing what it does in the ordinary course of business, the actions that allow the company to do what it does are not (in the ordinary course). These, on the contrary, involve the most important decisions that need to be documented. These are often one-time (or just occasional) transactions. So Celine is paying $10,000 to create a website for her non-OCB coaching business. Yes, she may need to update the website periodically; she even she can choose to review it completely more than once; but once she’s up, it’s done. The website is not Celine’s core business: coaching is. The website is just an auxiliary marketing tool. Similarly, the fact that Bob hires a contractor to renovate the store and put up shelving is not OCB. Once they’re up, they’re up.
Which are Other examples of the main decisions or transactions that need to be documented?
–Leases for, or sublease, commercial premises
–Significant contracts (often that involves an unusually large commitment of funds)
-To choose officers and directors of a corporation
-Take out loans, lines of credit, or other forms of financing for the business
-Joint ventures
-Designate corporate bank accounts, choose your bank location and who is authorized to log into the account
– Mergers, reorganizations or transactions involving a wholesale of much of the assets of the corporation
-Provide Benefits to the employees
Where is the fun in all this?
First, learning to write good minutes is an excellent exercise in learning to “Get to the point.” And that is the hallmark of a true professional. The minutes do not purport to be a painstaking transcript of every syllable uttered (indeed, many comments are eminently forgettable)! Rather, they distill the essence of each matter. Topics discussed (1 to 2 awards)? Significant points raised? Actions taken?
Second, the meetings and resulting minutes are a wonderful opportunity for you and your co-owners (if you have any) to enjoy building your business. It is a time to meet, ideally, in a spirit of camaraderie, to discuss important issues. If you are a sole proprietor, you can simply “sign off” the decisions you make. But the very process of recording these items can give you a deeper understanding of the issues facing your business along with the ability to focus on what’s important.
Finally, Meeting minutes are like a diary (summary). And who doesn’t enjoy the memories that come from flipping through the pages of a diary from the past? Memories can be challenging learning experiences, like the strategic alliance (or other relationship) that didn’t work out as planned. Or they can provide markers for your company’s change and growth over time. In a year, you may see bills authorizing a loan for the purchase of major equipment. In the next year, you may have signed a major contract, which you never could have contemplated if it weren’t for that team. Far from being a deadly task, minutes can give you that same breath impulse You need to keep moving your company forward!