The Importance of Corporate Formalities

As a corporation owner you are required by law to follow Corporate Formalities. Some examples of corporate formalities include keeping the corporation in good standing in the state of incorporation, maintaining the stock ledgers properly, keeping your corporate minutes and corporate resolutions up-to-date.

Taking Care of Your Company

So you've incorporated. Now what? Incorporating offers the power of liability protection but the only way the courts enforce that benefit is if you treat the corporation like a corporation. Unfortunately, people incorporate and continue to treat the company as if it’s a sole proprietorship. Read the 10-most common mistakes.

Failure to maintain proper "Corporate Formalities" could lead to:

  • Your corporate charter being revoked.
  • Losing the personal asset protection your corporation provides.
  • Paying tax penalties on unauthorized deductions.
  • Having your company left in “bad standing” and out of compliance.
  • Shareholders becoming personally liable for the corporation’s activities/debts.
  • Allowing a creditor, the IRS or unscrupulous attorneys to eliminate the corporate protection of your company and seize your personal assets.

Without proper Corporate Formalities, your business, your home, your personal investments, everything you incorporated to protect; could be wiped out overnight.

In the eyes of the law, it doesn’t matter if you are the sole person on the board of directors, the only officer and the only employee; small closely-held corporations are under the same legal obligations as big private companies. In fact, it is even more critical that you show separation between yourself and the company.

Who's At The Greatest Risk - Understanding Seperation

In the case of Litchfield Asset Management v. Mary Ann Howell, the courts found that Antiquities Associates, LLC owned by Mary Ann Howell and her husband, is considered a disregarded entity and that the owners should be held personally liable to fulfill a debt of $657,207.38 plus interest. Mary Ann Howell had failed to separate her personal actions from that of the business. This caused the courts to eliminate the protection the LLC provides and allow the plaintiff to attack her personal assets.

The courts, creditors and IRS have found ever expanding reasons to hold directors, officials and shareholders personally liable for corporate responsibilities.

At the Compass Group we've helped thousands of business owners. We’ve developed several powerful tools and numerous resources to help you maintain the liability protection your corporation should provide.

When you incorporated you expected to limit your liability. But failing to do business in the corporate format can undo all of that if you don’t do things right. That is why corporate formalities are important. The tragedy is that doing things right really isn’t very difficult and with the help of The Compass Group programs can be done quickly and efficiently.

Don’t over look this technicality another day. Call The Compass Group at 1-877-834-8211 and secure your corporate shield today.

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DISCLAIMER: Compass Group and its employees or agents are not in the business of providing tax or legal advice. If legal advice or other expert assistance is required, the services of a person in those professions should be sought. Compass Group, its employees and agents do not make any factual determination as to the validity of any business deduction for tax purposes. Compass Group does not expressly or impliedly endorse, accept, or validate any business record produced by Compass Group on behalf of Client. The Completed Documents produced by Compass Group through this written request are based solely upon the information provided by the client.