Corporate Record Book - Friend or Foe?
The Corporate Record Book remains an enigma for most business owners.
Maybe when you got it, you opened it up and saw the legalese and shut it QUICKLY!Maybe, you never got one at all and hoped that you didn't need it in the future.
Perhaps your attorney or accountant is keeping it current.
Whatever your current situation, a corporate record book is a key part of the functioning and profitability of your business.
What is the corporate record book and what is its function?If you think of a corporation or an LLC as a puppet and you as the business owner as the puppet master, the record book is the puppet strings.
If you are audited or in a corporate lawsuit, one of the first things that will happen is that there will be a subpoena for your record book.
If it is not filled out, the judge in some states can rule that the corporation or LLC is an alter ego.
In other words, there is not enough distinction between you and the corporation and the court can thus pierce the corporate veil and go after your personal assets.
On the plus side, a corporate record book can prove a handy tool for backing up expenses or documenting corporate activities.
One of my clients won a lawsuit against Rupert Murdock, simply by keeping up his record book! It is also an excellent tool for clear and concise communications between partners, thus averting any potential internal disagreements that might happen in the future.
I had a client in Texas, where the original stock of the company was divided up 50/50.
Unfortunately, one of the partners was having marital problems and his solution? Well, he volunteered as a civilian in Iraq.
Needless to say, this tied the other partner's hands to move forward in any major business decisions.
Working hand in hand with the client's attorney, we were able to make changes in the ownership and responsibility in the company, setting up a strong foundation for the company's future.
By documenting these changes within the record book, it alleviated any future misunderstandings and potential internal lawsuits.
There are several distinct sections of any corporate record book.
The first section normally holds the original documentation for the corporation or LLC.
These can be kept in plastic sheet covers for safekeeping.
Secondly, in both LLC and Corporate Record Books are the minutes of the first meeting.
Although you do not receive the record book, until after you incorporate or form your LLC, this initial meeting lays the groundwork for the entity.
It serves to nominate and name officers and lays out some of the basics of the corporate function and purpose.
The third section is the bylaws for a corporation or the operating agreement for an LLC.
These are the rules of the road for the functioning of the company.
It covers such subjects as voting rights, the function of the officers or managers of the entity.
It also talks about such key issues as who has the authority to open the bank account and what is the maximum amount that a partner can spend without prior approval.
Bylaws are fairly standard.
Operating agreements can be tailored more specifically for the LLC.
The next section is resolutions.
Here is where the proverbial rubber hits the road!Want to lease a car through your corporation? Make sure you have a resolution!Perhaps you want to hire an employee or fire one?A resolution provides documentation on those decisions.
The resolutions are the records of on-going actions taken by the corporation or LLC in your name.
Finally, you issue yourself and the partners stock or units of membership in the corporation or LLC.
This is crucial as far as determining who has the voting power within the corporate entity.
The record book can become an effective tool for the full utilization of your corporation.
By using it correctly, you can protect yourself, your business and your personal assets.
Maybe when you got it, you opened it up and saw the legalese and shut it QUICKLY!Maybe, you never got one at all and hoped that you didn't need it in the future.
Perhaps your attorney or accountant is keeping it current.
Whatever your current situation, a corporate record book is a key part of the functioning and profitability of your business.
What is the corporate record book and what is its function?If you think of a corporation or an LLC as a puppet and you as the business owner as the puppet master, the record book is the puppet strings.
If you are audited or in a corporate lawsuit, one of the first things that will happen is that there will be a subpoena for your record book.
If it is not filled out, the judge in some states can rule that the corporation or LLC is an alter ego.
In other words, there is not enough distinction between you and the corporation and the court can thus pierce the corporate veil and go after your personal assets.
On the plus side, a corporate record book can prove a handy tool for backing up expenses or documenting corporate activities.
One of my clients won a lawsuit against Rupert Murdock, simply by keeping up his record book! It is also an excellent tool for clear and concise communications between partners, thus averting any potential internal disagreements that might happen in the future.
I had a client in Texas, where the original stock of the company was divided up 50/50.
Unfortunately, one of the partners was having marital problems and his solution? Well, he volunteered as a civilian in Iraq.
Needless to say, this tied the other partner's hands to move forward in any major business decisions.
Working hand in hand with the client's attorney, we were able to make changes in the ownership and responsibility in the company, setting up a strong foundation for the company's future.
By documenting these changes within the record book, it alleviated any future misunderstandings and potential internal lawsuits.
There are several distinct sections of any corporate record book.
The first section normally holds the original documentation for the corporation or LLC.
These can be kept in plastic sheet covers for safekeeping.
Secondly, in both LLC and Corporate Record Books are the minutes of the first meeting.
Although you do not receive the record book, until after you incorporate or form your LLC, this initial meeting lays the groundwork for the entity.
It serves to nominate and name officers and lays out some of the basics of the corporate function and purpose.
The third section is the bylaws for a corporation or the operating agreement for an LLC.
These are the rules of the road for the functioning of the company.
It covers such subjects as voting rights, the function of the officers or managers of the entity.
It also talks about such key issues as who has the authority to open the bank account and what is the maximum amount that a partner can spend without prior approval.
Bylaws are fairly standard.
Operating agreements can be tailored more specifically for the LLC.
The next section is resolutions.
Here is where the proverbial rubber hits the road!Want to lease a car through your corporation? Make sure you have a resolution!Perhaps you want to hire an employee or fire one?A resolution provides documentation on those decisions.
The resolutions are the records of on-going actions taken by the corporation or LLC in your name.
Finally, you issue yourself and the partners stock or units of membership in the corporation or LLC.
This is crucial as far as determining who has the voting power within the corporate entity.
The record book can become an effective tool for the full utilization of your corporation.
By using it correctly, you can protect yourself, your business and your personal assets.