Maintaining Corporate Records
Once your Corporation is formed, you cannot ignore it. Besides paying your annual franchise tax to the Illinois Secretary of State, in order to maintain the benefits of being a Corporation and the shield against individual liability, you must observe the corporate formalities. Failure to do so could result in a Court piercing the corporate veil.
To pierce a corporate veil, someone suing you must establish: (1) there is such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, i.e., the corporation is the alter ego for the individual; and (2) that the adherence to the fiction of a separate corporate existence would allow a fraud or promote injustice or inequitable consequences. The piercing doctrine is an equitable remedy used to impose individual liability for a cause of action, such as a tort or breach of contract. Simply stated, if you do not maintain the corporate formalities you could be held personally liable if sued.
You should hold an Annual Shareholder’s Meeting. At the Meeting, the Shareholders should elect the Directors. The Directors should appoint the Officers. Throughout the year, Resolutions should be passed when important decisions are made, like signing a lease, opening a Bank Account, hiring an Accountant, or entering into any long-term relationships. Minimally your records should be reviewed and updated annually. By doing these things and others, you minimize the risk that your corporate shield will be pierced and you will be in jeopardy of personal liability.
At BURKE & HANDLEY, P.C. we can review your Corporate Record Book, Resolutions, and Meeting Minutes and assist in preparing and maintaining the proper records. We can advise you on the proper way to handle the corporate formalities in order to best assure that your corporate shield is solid.