Spend Some Time On Your Minutes
Shareholders of closely held corporations often view corporate minutes as a needless formality. But for legal, historical, and tax reasons, keeping good corporate minutes is important and worthwhile.
By law, corporations must keep minutes of meetings of shareholders and directors. Failure to do so may be damaging. For example, if someone sues shareholders for a corporate debt and can show the corporation did not follow formalities, like keeping minutes, then the corporate separateness may be ignored. Shareholders may then be held personally liable for the debt.
For historical reasons, complete minutes make good sense. They provide a written record of major events in the life of the corporation and are therefore useful when shareholders want to see how a problem or issue was dealt with in the past.
For tax reasons, information in the minutes can be a cost-saving tool. This is because the IRS often asks to see the corporate minutes when auditing a corporation. Proper minutes can help justify tax-saving steps taken by the corporation and can help your company in an audit. For example, minutes that state the legitimate reasons and amounts of officers’ salaries and bonuses can help stop the IRS from denying a deduction as being unreasonably large. If minutes spell out details of fringe benefits, like retirement or insurance plans, there is a better chance the IRS will let the deductions for such benefits stand.
Although corporate minutes should contain as much information as possible, at the very least, they must reflect shareholders’ and directors’ meetings. In closely held corporations, minutes of these and other actions can often by done by “unanimous written consent.” There is usually no need for an actual meeting.
Here is a checklist of some items to include in corporate minutes. The decision of which items to include in addition to those required by law depends on the circumstances of each corporation. Matters of this nature should be reviewed with a lawyer.