Corporate Minutes
Corporate Minutes
- Corporate Minutes are the official records of your Board of Directors
meetings and shareholders meetings. The corporate minutes are maintained in date
order in your corporate minute book. For easier access the newest minutes are
generally placed in front of the prior meeting's minutes.
You formed a corporation to shield your personal assets against liability arising from the operation of your business. Proper, timely corporate minutes can be used as evidence that helps to protect the personal assets of your corporation's shareholders (owners) and officers during IRS audits and in tax, creditor and other civil lawsuits.
Maintaining accurate and timely corporate records is crucial to defending against alter ego claims which, when successful, allow the IRS, state tax agencies, creditors and other plaintiffs to "pierce the corporate veil" and collect corporate debts and obligations directly from the your shareholders and officers.
During an audit, the IRS, using minutes seized from your corporate minute book, will search for discrepancies between the corporate resolutions adopted by your shareholders and board of directors and the actions of your corporation.
Absent proper authorization in the corporate minutes (and accurate expense records), the IRS can reclassify expense reimbursement paid to you, a shareholder-employee, as a dividend. The payment of this "dividend" to you is not deductible by your corporation and is delinquent taxable income to you on which you may owe back taxes, interest and penalties.
Absent proper authorization in the corporate minutes (and written loan agreements), the IRS can reclassify insider loan funds from a shareholder to a corporation as additional capital contribution and the loan principal repaid to the shareholder as a dividend. The payment of this "dividend" to you is not deductible by your corporation and is delinquent taxable income to you on which you may owe back taxes, interest and penalties.
Absent proper and timely authorization in the corporate minutes, the IRS can reclassify "excessive" compensation paid to shareholder-officers as dividends. The payment of this "excessive" compensation re-characterized by the IRS as a "dividend" to you is not deductible by your corporation (the non-excessive compensation remains deductible) and is delinquent taxable income to your shareholder-officers on which they may owe back taxes, interest and penalties.
If your corporate minutes are not up to date, then update them now. Suppose that your Board approved one of the above three actions a year or two ago. By the time the IRS has demanded your Corporate Minute Book, it's too late. The IRS will not give you time to get your minutes in order.
During an audit, the IRS will generally demand that you produce business records from the most recent three years or so. However, tax fraud is not subject to a statute of limitations (a limit on its power to prosecute an action because it occurred too long ago). If the IRS merely alleges that you or your corporation committed tax fraud, then it may demand your business records from ten or more years ago.
Directors, like corporate officers, from time to time, seek advice of legal counsel. The content of their discussions with counsel is privileged from Discovery in a lawsuit under a legal doctrine known as Attorney-Client Privilege. If your legal counsel is present at your Board of Directors meeting, then your Secretary should say so in the corporate minutes.
The Attorney-Client Privilege applies to discussions between directors and counsel at your Board of Directors meeting. Writing the substance of those discussions in your corporate minutes may result in a waiver of the Attorney-Client Privilege so it is best to merely note with respect to the applicable resolution in the minutes that "Members of the board of directors and legal counsel engaged in a privileged discussion on this matter." Be forewarned that while an attorney's work product may be privileged from discovery, your notes of a privileged conversation with your counsel do not constitute attorney work product.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.
You formed a corporation to shield your personal assets against liability arising from the operation of your business. Proper, timely corporate minutes can be used as evidence that helps to protect the personal assets of your corporation's shareholders (owners) and officers during IRS audits and in tax, creditor and other civil lawsuits.
Maintaining accurate and timely corporate records is crucial to defending against alter ego claims which, when successful, allow the IRS, state tax agencies, creditors and other plaintiffs to "pierce the corporate veil" and collect corporate debts and obligations directly from the your shareholders and officers.
During an audit, the IRS, using minutes seized from your corporate minute book, will search for discrepancies between the corporate resolutions adopted by your shareholders and board of directors and the actions of your corporation.
Absent proper authorization in the corporate minutes (and accurate expense records), the IRS can reclassify expense reimbursement paid to you, a shareholder-employee, as a dividend. The payment of this "dividend" to you is not deductible by your corporation and is delinquent taxable income to you on which you may owe back taxes, interest and penalties.
Absent proper authorization in the corporate minutes (and written loan agreements), the IRS can reclassify insider loan funds from a shareholder to a corporation as additional capital contribution and the loan principal repaid to the shareholder as a dividend. The payment of this "dividend" to you is not deductible by your corporation and is delinquent taxable income to you on which you may owe back taxes, interest and penalties.
Absent proper and timely authorization in the corporate minutes, the IRS can reclassify "excessive" compensation paid to shareholder-officers as dividends. The payment of this "excessive" compensation re-characterized by the IRS as a "dividend" to you is not deductible by your corporation (the non-excessive compensation remains deductible) and is delinquent taxable income to your shareholder-officers on which they may owe back taxes, interest and penalties.
If your corporate minutes are not up to date, then update them now. Suppose that your Board approved one of the above three actions a year or two ago. By the time the IRS has demanded your Corporate Minute Book, it's too late. The IRS will not give you time to get your minutes in order.
During an audit, the IRS will generally demand that you produce business records from the most recent three years or so. However, tax fraud is not subject to a statute of limitations (a limit on its power to prosecute an action because it occurred too long ago). If the IRS merely alleges that you or your corporation committed tax fraud, then it may demand your business records from ten or more years ago.
Directors, like corporate officers, from time to time, seek advice of legal counsel. The content of their discussions with counsel is privileged from Discovery in a lawsuit under a legal doctrine known as Attorney-Client Privilege. If your legal counsel is present at your Board of Directors meeting, then your Secretary should say so in the corporate minutes.
The Attorney-Client Privilege applies to discussions between directors and counsel at your Board of Directors meeting. Writing the substance of those discussions in your corporate minutes may result in a waiver of the Attorney-Client Privilege so it is best to merely note with respect to the applicable resolution in the minutes that "Members of the board of directors and legal counsel engaged in a privileged discussion on this matter." Be forewarned that while an attorney's work product may be privileged from discovery, your notes of a privileged conversation with your counsel do not constitute attorney work product.
Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.
Copyright © 2003-2010 LawVantage.com, LLC. All rights reserved.
Important LawVantage.com, LLC and its website, CorporateBoardMinutes.com, do not render any legal, accounting or other consulting advice.
For legal advice, you should always consult with a qualified attorney-at-law.
Website development by
Vine Design.