Business Department

Individuals make the decision to incorporate for a variety of reasons, many of which boil down to the fact that they want to protect themselves and their personal assets from liability. However, simply forming a corporation is not enough. There are several ongoing considerations and actions you must take to ensure you receive the full benefits from your new corporate status.

The corporation has a life and existence of its own separate and apart from you and any of the other shareholders. As the owner of a corporation, you are required to hold shareholders' and directors' meetings, maintain corporate records, and document major corporate decisions. Ignoring formalities can mean that if your business runs into legal trouble, a court may disregard your corporation's separate existence. Someone could sue you and "pierce the corporate veil," which means that you may be held personally responsible for the corporation's debts. Your very purpose for incorporating could be lost. Therefore, it is critical that you take appropriate steps to maintain the formal integrity of your corporation.

Approval of the Board of Directors or Shareholders
The board of directors or shareholders should approve all important corporate business transactions – either at a meeting of the directors or shareholders or by a written document showing their unanimous consent. The decisions at meetings of directors and shareholders should be memorialized in written minutes or, when action is taken without a meeting, in written resolutions adopted by the board of directors or shareholders. When signed, these minutes and resolutions should be appropriately identified and kept in a minute book or in corporate files.

Documentation of Major Events and Decisions
While you do not need to document routine business decisions, you should prepare written minutes or resolutions for events or decisions that require formal board of director or shareholder participation. For example, you should document the minutes of director or shareholder meetings for the purchase of real property, a lease or a loan. You should also document when you bring in new shareholders, change officers, adopt a retirement or stock option plan, or make important tax decisions.

If you document important corporate decisions, you will protect your corporate status and have documentation if the court, other shareholders or directors, or even the IRS later question significant decisions. In addition, good corporate records allow you to provide a history of critical decisions, which can head off controversy and dissension in the future. Even if you are an existing corporation and have not been following these formalities, you can still protect yourself by adhering to the formalities in the future.

Legal Assistance
The most common reason business owners do not have good corporate records of important decisions is simply that they forget to take this extra step. MacElree Harvey offers a unique way to help you and your corporation adhere to the formalities of the corporate form. Our Corporate Database Program provides you with a yearly reminder that it is time for your annual meeting and time to record large transactions and review your corporate activities. This yearly reminder also includes a checklist for you to complete that will allow MacElree Harvey to prepare the minutes and resolutions needed to update your corporate records. Please contact an attorney at MacElree Harvey to have your corporation entered into the program.

MacElree Harvey
17 West Miner Street
Post Office Box 660
West Chester, PA 19381–0660
p | 610.436.0100
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