Corporate Formalities
We understand that some businesses start with little or no legal advice. As a consequence, little has been done to ensure that the legal entity was in fact formed properly and corporate formalities have been followed. We provide a free assessment of the corporate/operating documentations and advise our clients what is needed. Our objective is to find and fill in the legal gaps of your business.
- Corporation. Corporate formalities are typically associated with corporations. This includes the shareholder meetings and approvals for certain transactions or business operations as well as respective board of director approval. This includes following the corporation’s bylaws and internal processes. This is important in the context of piercing of corporate veil analysis. When a creditor wishes to get to the shareholders, they may look for ways to find the corporation to be an alter ego of its owners. Missing or inadequate corporate records may be the reason the court may decide in favor of the creditor.
- LLC. In addition to California law, LLCs are governed by the operating agreement. The operating agreement dictates the formalities interest-holders must adhere to. Larger business may require certain meetings and approvals not required for smaller business. The firm assesses the existing operating agreement, suggests amendments, and provides the necessary support to make that happen. Generally, LLCs call for approval of certain transactions, typically larger ones. Even if not required, it is a best practice to get approval from other interest-holders.
- Partnerships. In addition to California law, partnerships are governed by the partnership agreement. The agreement defines roles, responsibilities, and any formalities that need to be adhered to. The agreement also defines the partnership type, which in turn obligates one set of partners to certain action while relieving others from it. Legal counsel is needed to assess the requirements and structure of the agreement.
FAQs
How expensive are corporate formalities?
If initial corporate formalities were established, subsequent formalities are not at all time consuming. We are typically engaged to establish the flow and process of meetings, approval, and other requirements.
What constitutes of corporate formalities?
It all depends on the bylaws. At a bare minimum, an annual shareholder meeting, board of director meetings, and other approvals that the bylaws call for. Generally, approval of significant contract, salary, and corporate restructuring.
Can I do it myself?
It all depends on the corporation. If we are retained to establish a process, then yes. If we are not engaged, the clients need guidance on what exactly is needed.
I have an LLC, what requirements do I have?
LLCs are governed by the operating agreement. A careful review will indicate what is needed. The firm is frequently engaged to review and revise the operating agreement and provide guidance on any reoccurring requirements or approvals.
I am part of a partnership; do I have certain formalities to maintain?
The partnership agreement governs the formalities and partnership structure. A careful review will show the exact requirements. We are frequently retained to review and amend partnership agreements and provide guidance on compliance.