A corporation is a type of business formation that allows the company to operate as its own separate entity, independent from the owners of the business. This means that business owners are shielded from much liability and losses that the corporation may be exposed to. However, in order for the protections of a corporation to exist, the business must observe certain guidelines and operating rules.
“Corporate formalities” are steps and precautions that the business must take to ensure that the corporation remains legally distinct from its owners. Most of these steps include keeping separate records for corporate activity, holding regular meetings for corporate directors, and maintaining a financial independent account for the corporation.
The individual requirements for corporate formalities can vary widely by state, and according to the specific type of corporation that the business has filed as. The following is a corporate formalities checklist to follow that can help make sure that corporate formalities are being followed. Some important steps to follow may include:
If corporate formalities are not followed, it can result in what is known as “piercing the corporate veil”. “Piercing the corporate veil” means that the corporation is no longer acting separately from the business owners. This can result in the business owners becoming liable for losses or liabilities that the organization incurs.
To avoid liability for directors, officers, and shareholders, business actors should take the following precautions:
While this corporate formalities checklist can be of help to those starting or maintaining a corporation, many disputes and violations can arise during the course of business dealing. If you have issues with corporate formalities, you may wish to contact a lawyer for advice. Your lawyer can assist you in complying with both government laws and internal company policies. Observing corporate finalities may take some extra measures, but can save the corporation from extra legal expenses in the future.
Last Modified: 06-15-2015 06:12 PM PDTLaw Library Disclaimer
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