I have had the pleasure of working with several business owners over my career. These owners are resourceful, hardworking, intuitive, and above all, they are problem-solvers. In my experience they are not, however, fastidious readers and devotees of their Bylaws or Operating Agreements. And why would they be? They have attorneys for that. The mark of a successful and smooth-running company is one that can file its organizing documents in the back of a drawer somewhere to gather dust.
However, hiding in those Operating Agreements and Bylaws are provisions that require annual meetings of the members or shareholders/board of directors. Maintaining complete and accurate business records is important to shield business owners from potential liability from minority interest holders and creditors, and to avoid headaches down the line when they are interested in selling or transferring their business interests.
In addition, failure to hold regular meetings is factored into the determination of whether the company is simply an “alter ego” of the owners. Although alter egos are fun in superhero movies and comics, in the business world they should be avoided at all costs. If a court determines the company is an alter ego of its owners, the business is not treated as a separate entity and the owners may be held personally liable for claims against and debts of the business. Failure to hold annual meetings can dissolve the liability protection, one of the primary reasons to create a business in the first place.
Keeping up with the procedural formalities of a business is an important part of any risk management plan. The purpose of annual meetings is to elect or remove directors, approve transactions between the company and its directors/members, report on the business’s finances, and approve future plans.
Our office regularly prepares the annual meeting minutes for businesses to keep them in compliance with their own organizing documents. There is still time to hold your annual meeting for 2020. If you cannot remember the last time your business held an annual, it is time to come into our office to update your corporate record book and bring it into compliance.