For most entrepreneurs, corporate record-keeping is the least fun part of the job. When you’re running a growing business, it’s tempting to overlook some of the administrative formalities in order to stay focused on sales, customer satisfaction and new product development.
However, staying on top of your corporate record-keeping is essential for both legal and strategic reasons.
So, if you’re operating your company as a corporation, S corporation or LLC and are ready to dive into corporate record-keeping, here’s what you should know:
Why you should keep good corporate records
Understanding why corporate record-keeping is important in the first place makes it a lot easier to make time for this task. In short: you’ll realize what could happen if you don’t.
First, understand the role these records have in helping you maintain the “corporate veil” protection you need against lawsuits and creditors. If someone sues your business, he or she might try to pierce your corporate veil and show that your business failed to follow proper corporate formalities according to state law.
Having done that, this person might try to go after your personal assets as part of the settlement.
One of the main reasons why you formed a corporation or LLC in the first place was to maintain the shield of limited liability, so you’ll want to safeguard that limited liability, with proper corporate records. Don’t give a plaintiff or court any reason to question your company’s compliance.
Beyond the corporate veil, there are other reasons to keep good records: For example, corporate records might be requested by the IRS. You might need to show written evidence (meeting minutes) that your company approved an important decision like changing its fiscal year or electing S corporation status.
Another key reason for keeping accurate corporate records is if you ever want to sell the business. Potential purchasers often want to examine your records to determine past performance. Poor or incomplete records could lower the company’s purchase price.