Corporate Maintenance – Maintaining Your Corporate Records and Ensuring Legal Compliance

When you incorporate in the State of Florida, you are required to meet certain obligations. You need to file annual reports on time and you need to pay renewal fees for your corporate charter. You also need to have regular shareholder meetings and keep minutes of those shareholder meetings.

For many businesses, especially closely held businesses, these regulations can seem like a waste of time. However, the consequences of failing to meet these obligations are severe.

We can help you comply with all state corporate maintenance requirements. Our team will make sure that you get everything filed on time. We will help remind you about deadlines for shareholder meetings, help prepare minutes for your shareholder meetings, and help make sure important company / board decisions and transactions are properly recorded.

We perform corporate maintenance and corporate records compliance for companies of all sizes, including one-person companies and companies with thousands of employees and hundreds of shareholders.

Don’t put your corporate status at risk over poor record keeping practices. Let us help you stay in compliance and up to date with all of your corporate records and meetings.

What is Corporate Maintenance?

Corporate maintenance is the practice of making sure a corporation has all of the appropriate meetings, that the notices for all shareholder meetings follow state regulations, and that all corporate records are properly kept and stored.

Because there are so many different things to keep track of, attorneys often help with corporate maintenance issues. They are responsible for reminding the corporate officers that a shareholders meeting needs to take place. They help complete and submit the annual report to the state. Attorneys can also help write up the minutes for shareholder meetings and record important decisions by the board and company officers.

Attorneys make sure that the corporation’s renewal fees are paid on time and that the corporation remains in good standing with the State of Florida. Corporate maintenance also means making sure that the corporation is safe from attacks from creditors and plaintiffs that allege the corporation is a sham because it doesn’t follow all of the legally required corporate formalities.

Why Does Corporate Maintenance and Compliance Matter?

When you fail to properly maintain your corporate records, file annual reports, and hold regular meetings as required by Florida law you put your company and your shareholders at risk for significant problems.

Companies that do not follow good corporate maintenance practices risk:

• Dissolution of the corporation
• Creditors piercing the corporate veil
• Corporate veil being pierced during litigation
• A variety of IRS issues
• Not being able to consummate a sale or merger at the going market rate

Failure to properly maintain corporate records and to hold legally mandated corporate meetings could result in a court, the IRS, or the State of Florida to find that you are not a legitimate corporation. This type of finding can be legally and financially devastating for the shareholders and officers of the corporation.

Every corporation should have an attorney making sure they stay in compliance with state laws that govern corporate formalities such as shareholder meetings, annual reports, and the minutes of shareholder meetings. The consequences of being out of compliance are too severe to ignore.

Dissolution of the corporation

Corporations are creatures of state law. The state decides what is required before a corporate charter will be issued. And, what the rules are for maintaining the corporate charter. Having a corporation provides shareholders a lot of benefits. Typically, shareholders are not personally liable for corporate debts, taxes, or other financial obligations. Shareholders cannot be sued for the actions of the corporation.

Florida requires that corporations file an annual report every year. If a report is not filed by the third Friday in September, the company may be dissolved by the state.

This puts all of the corporation’s assets at risk and could put the shareholders in financial and legal jeopardy.

The law also requires that corporations have annual shareholder meetings and that the company keeps notes of the meetings.

Failure to comply with these requirements could cause the state to dissolve the corporation or to revoke the corporate charter, which in effect would mean that the corporation never existed.

These drastic consequences are easy to avoid if corporate records are properly maintained and all corporate formalities are properly observed.

Piercing the corporate veil

One of the most severe consequences of corporate maintenance and compliance failure is the piercing of the corporate veil. This means that a court has decided that the corporation is not a true company, but is instead just a sham to try and hide assets from creditors.

When a judge allows for the piercing of the corporate veil it opens up shareholders to being personally liable for the debts of the corporation. It also removed legal protections that kept the shareholders and officers from being sued individually for the actions taken by the corporation.

The piercing of the corporate veil renders all of the financial and legal protections of the corporation useless. It also effectively ends the life of the corporation.

Courts are usually reluctant to pierce the corporate veil. However, when companies have failed to properly maintain their corporate records and hold the required meetings, it is easier for courts to pierce the corporate veil and to allow plaintiffs and creditors to personally sue corporate officers and shareholders.

IRS problems

When the IRS performs a corporate audit one of the things they are interested in is making sure that the corporation is a real company and not part of a tax avoidance scheme. This is especially important in closely held companies.

When there are no corporate records, or the minutes of meetings are vague and irregular, the IRS may get suspicious. If the IRS finds that the corporation has not been holding the appropriate meetings or keeping the appropriate records, it may find that the corporation doesn’t count as a corporation for tax purposes.

This will have several devastating consequences. First, it can open up shareholders to personal liability for the tax debts of the company. The IRS has sweeping powers to garnish accounts, place tax liens on homes and cars, and to seize assets to pay tax debts.

A finding by the IRS that the corporation is a sham, could expose previous years’ corporate tax returns to review. The shareholders may lose the tax benefits associated with owning a company. Money that was once taxed at capital gains rates may be taxed at the much higher personal income tax rates.

If the IRS finds that the corporation is a sham, it is the officers and shareholders that will feel the brunt of the IRS’s tax enforcement practices.

Exit strategy issues

If you ever want to sell your business or to merge with another company, part of the other side’s due diligence will be to lookup your annual reports and to survey your corporate records.

If you are not able to produce timely, full and accurate corporate records, it may be a red flag to your potential partner or buyer. They may decide that doing a transaction with you is too risky and could call off the deal.
They may also decide that because of the risks created by your poor corporate record keeping they will only proceed with the deal at a greatly reduced price.

Few companies will be willing to assume your debts if your assets may be vulnerable to attack from plaintiffs because of poor record keeping practices.

Until you can sort out your corporate records and compliance issues you may left without a clear exit strategy from your business.

Why You Should Have an Attorney Oversee Your Corporate Maintenance and Compliance

There are three major advantages to having an attorney be in charge of your corporate maintenance and compliance issues:

  1. You already have a lot on your plate. It is easy to overlook administrative matters like shareholder meetings, keeping minutes, or submitting annual reports. Having an attorney oversee these issues makes sure they don’t fall by the wayside.
  2. When an attorney is overseeing the corporate maintenance you can rest assured that all of your meeting notices, meeting minutes, and other corporate records will be in full compliance with state corporate law as well as with state and federal securities law.
  3. You do not have to worry about changes in reporting requirements or corporate best practices. Your attorney will be on top of any law changes and will automatically incorporate needed changes into the corporate maintenance process.

Having an attorney oversee your corporate maintenance ensures that you stay in compliance and that you avoid things like the piercing of the corporate veil or having the IRS find shareholders personally liable for corporate tax obligations.

What Happens During the Corporate Maintenance Process?

When working with an attorney, the corporate maintenance process is straightforward. The attorney will go over with you the annual and quarterly requirements. Then they will send you regular reminders of when you need to have your meetings.

They will prepare your shareholder meeting minutes, annual report, and notices for shareholder meetings. They will also make sure that you are keeping all of your corporate records for the appropriate length of time.

If you ever receive a request for your corporate records form the IRS, a plaintiff, or a potential buyer, your attorney will make sure the records are in order and are timely delivered.

The costs of having an attorney oversee your corporate maintenance are so small compared to the major risks of being found out of compliance that it makes good business sense to delegate your corporate maintenance process to an experienced corporate attorney.

Downtown Orlando Office

790 N. Orange Ave
Orlando, FL 32801
Phone: (407) 259-2426
Toll Free: (866) 801-2636
Fax: (407) 391-3626

Metrowest Orlando Office

7065 Westpointe Blvd., Ste 311
Orlando, FL 32825
Email: contact@walshbanks.com

About

Walsh Banks Law is a boutique law firm located in Orlando, Florida. We specialize in business law, real estate law and commercial litigation.