You remember your corporate books, don’t you? That was the “book” created when you started your business. Items like articles of incorporation, by-laws, operating agreements, shareholders, unit holders, buy-sell agreements and meeting minutes are in there. It is very common for these records to just sit after a business start. However, the corporate book should be kept up to date, especially if there is more than one owner.
Below, we outline some instances where lack of corporate record keeping caused some issues for small business owners. If you need help with your corporate books, please seek the assistance of a professional business attorney.
The Corporate Veil
This protection is one of the reasons LLCs (Limited Liability Companies) and corporations are used. They offer a protective barrier between your business assets and your personal assets. However, if you are not following the directions as stated in the by-laws or operating agreement, this veil may be pierced.
This comes into play if you are unfortunate and become embroiled in a lawsuit or bankruptcy. We have seen lawsuits between co-owners of a business and alleged failure to comply with other business contracts. Also, product and service liability lawsuits are common.
Needing to Get a Loan
Often, when a small business owner is seeking a loan, the lending institution will ask to see the corporate books. One reason they do this is to ensure the person seeking the loan has the authority to do so. We have seen the loan process slowed down and expenses added because the books were not up to date.
Selling Your Business
A potential buyer may want to see your corporate books as part of the review of the business. We have actually seen a situation where a potential buyer discovered that the person selling the business had no authority to do so! The corporate books indicated this person was a minority owner and was trying to make a unilateral decision to sell the business.
As small business owners, we get busy operating our businesses. It is easy to let administrative maintenance slip. We encourage you to keep your corporate books up to date.
Contact us today for assistance in your business planning and growth needs.