Its time you paid attention to the details of corporate requirements and formalities, or you may be sorry.

Everyone does it, you have your lawyer incorporate you, you print your stationary, business cards, create your web site and operate fully believing your business is a corporation and thus you are entitled to all the benefits, protection and organization afforded such structure. This may be true, but lets examine this issue closer.

1. By-Laws: More then likely your Lawyer ordered up the Black Widow kit, including a few stock certificates, a corporate seal and stamp, standard form by laws, and all in a neat case. Adequate to satisfy the basic requirements for incorporating along with the filed documents, the Articles of Organization.

However is this truly adequate? If you are a one man corporation it may be adequate as it is all about you, but if there are other owners, then one should look long and hard at the standard form by-laws and evaluate them for their appropriateness for serving a multi owner relationship, as when the going gets tough and someone wants to get aggressive and make changes, the by-laws control and if this was not contemplated in the beginning, its too late when you need them to support the intended power structure later.

This frequently occurs and is always a major although completely avoidable set of problems, had you investigated and resolved these issues in the beginning.  Do not expect your lawyer to advise you on this issue, unless you request such specialized assistance. They just don’t for the most part, it may be expensive. Its worth the additional cost. This also includes requesting employee contracts for all major owners if their are multiple owners.

I am a huge believer of custom designed deeply thought out carefully structured by- laws, designed to cover every imaginable contingency.

2. Money in: Owners frequently lend or invest money into their business or waive taking a pay check fully believing they are investing their cash, or lending it into the business,  who knows for certain how it will be catagorized unless there is documentation. This is a huge issue with enormous tax consequences and most always ignored to the chagrin of the owners years after, when options that are important and valuable become unavailable because the transactions were not thought out and documented. This may require notes or agreements , share holder meetings, votes etc, but in the end may be worth a huge amount if done correctly.

3. Co-mingling personal operations with business. Living out of the corporate check book. Sure who cares since your the only owner, but in the end when the corporate shield is dissolved and penetrated allowing creditors, law suits etc, to reach into your personal assets you will learn the basic requirement  and reason for NOT co-mingling as you may lose the valuable corporate shield protection. It is an automatic shield but can be abused and violated and lost.

4. Your signature,  Always sign every document with your corporate officer title as part of your signature, always. Failure to do this creates personal liability and exposure of all your personal assets to the debt or obligations of what you signed for. You will frequently be pressed to sign personally and thus guarantying corporate debt personally, don’t its always a mistake.

5. If you are married, do not allow your wife to co-sign anything. This exposes your home to the debt of the business. Best of all is to have her uninvolved at the corporate level, not as a signature on the check book, officer, Director or anything other then an employee. This will serve to protect your personal assets in a worse case scenario if things go wrong. This is not about power or making a judgement of value or worthiness, it is strictly intended to help prevent exposure of jointly owned family assets to the high risk of shared ownership of corporate assets and obligations.

6. Choice of entity, corporation, LLC, etc…get advice, consider the reasons and options and make an intelligent decision. The new LLC is a very interesting and valuable form of organization which should be considered carefully for many reasons. If your lawyer does not know how to advise you on this issue and does not include an LLC as a high priority option, get a new lawyer.

In addition a frequently overlooked requirement, usually handled by your accountant is the annual report required for all corporations.

After a few years of failure to file your corporate condition report  to maintain your corporate status along with a filing fee, will result in a dissolution of your corporation by the state. This can be fatal, as it reverts you to proprietorship status and you may have lost your corporate shield. Check with your accountant or call the department of corporations to determine your filing status.

The point is, a corporation is a legal entity and affords you the opportunity of doing business in a protected environment. Its a wonderful vehicle but like so many things there must be a level of understanding, care and detailed support for it to work at its best. It must be done correctly or one runs the risk of losing some or all of the important  benefits available. Pay attention to the details of your organization, ask if you need help its worth the additional billing and professional assistance to get it right. Call if you need help 413-549-2966.