When you go into business, you probably don’t do so for the fun and excitement of dealing with corporate formalities. However, these formalities are perhaps the key elements in protecting the shareholders and particularly the representatives of a corporation.
By clearly formalizing the corporation’s proceedings and separating the activities of individual representatives from those of the organization as a whole, corporate formalities help protect representatives from personal liability issues. Four important aspects of corporate formalities include holding regular meetings, planning for the future, keeping thorough and accurate records and ensuring the clear separation of corporate and personal activities—particularly in the realm of finance.
Holding an annual shareholders’ meeting and regular board of directors’ meetings are the two most basic activities that need to carried out related to formalizing what goes on within the corporation. But there are a number of other situations in which holding special meetings may be necessary, such as when major decisions are being made regarding financing, opening new accounts, selling or acquiring assets and entering into business contracts.
Proper planning and corporate formalities
Just as major decisions taking place in the present merit the formality of a board meeting, so do decisions regarding the future. Perhaps the biggest concern from a planning perspective is the budget, which is why it’s so important to meet to discuss the past year’s activities and develop and approve a budget for the foreseeable future. Meeting with an attorney or tax professional to ensure prudent tax planning is never a bad idea, and it’s also useful to schedule meetings at which the board is brought up to speed on the implementation of the budget plan.
In all aspects of the corporation, but particularly matters related to the activities of the board and the financial dealings of the corporation, it’s crucial that accurate and thorough records be kept. Having a paper trail is one of the best ways to protect the corporation—and its individual representatives—in the event of a crisis. And it’s also just good business practice to keep records for future reference, as you never know when your company might need them.
The above are all critical “dos” when it comes to corporate formalities, but there’s one big “don’t” that all corporations should keep in mind as well: don’t mix the corporate with the personal.
This goes for just about everything, but it’s especially important when finances are involved. Keeping strict separation between personal and corporate funds and assets is essential for minimizing risk to both individual representatives and the corporation.
The task of establishing good habits and processes related to corporate formalities can seem overwhelming and confusing, especially for new corporations and first-time business owners. For this reason, it is helpful to consult a U.S. Virgin Islands business attorney familiar with the specifics of corporate formalities to receive the guidance and advice to proceed with confidence.
BoltNagi is a well-established and widely respected corporate law firm serving businesses and organizations throughout the U.S. Virgin Islands.