OBSERVING CORPORATE FORMALITIES
By Attorney Randall J. Andersen
February, 2012
By Attorney Randall J. Andersen
February, 2012
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
If your business is organized as a corporation, there are a number of ongoing legal requirements which should be followed to maintain the existence of the corporation.
Annual Reports. Every corporation which is organized in Wisconsin or registered to conduct business in Wisconsin must file an annual report with the Wisconsin Department of Financial Institutions, and pay an annual filing fee of $25.00. The annual report includes basic information regarding the corporation, including the name and address of the registered agent and registered office, the corporation’s principal business office address, the names and addresses of the corporation’s officers and directors, and the number of authorized and issued and outstanding shares of stock. The annual report form is filed electronically through the Department of Financial Institution’s website.
Annual Shareholders’ Meeting. Corporations organized under Wisconsin law are required to have an annual meeting of the shareholders. Written minutes from the annual shareholders’ meeting should be prepared and kept in the corporate minute book. Matters addressed at the annual shareholders’ meeting typically include the election of directors, a review of the recent financial performance of the corporation and ratification of the actions of the officers and directors during the preceding year. Closely held corporations (particularly those with only one or two shareholders) sometimes dispense with the formality of conducting an annual shareholders’ meeting, by having the shareholder(s) sign a written “consent resolution” adopting resolutions which would have been adopted at the annual shareholders’ meeting.
Meetings of the Board of Directors. Regular meetings of the board of directors should be held in accordance with corporation’s bylaws. Written minutes of the meeting should be prepared and kept in the corporate minute book. Meetings of the board of directors should be preceded by notices to the directors, stating the date, time and place of the meeting. An annual meeting of the board of directors should be held (in addition to regular meetings of the board, in accordance with the bylaws). Business conducted at the annual directors’ meeting typically includes the election of officers and the ratification of actions taken by the corporation’s officers during the preceding year. Other matters which may also be addressed at the annual meeting of directors include the determination of compensation for officers of the corporation, and a review of anticipated capital expenditures and corporate borrowing for the ensuing year.
Avoid the Commingling of Assets. Closely held corporations, particularly corporations where there are only one or two shareholders, sometimes fall into the trap of commingling personal and corporate assets. Separate bank accounts should always be maintained for the corporation. Corporate and personal funds and assets should not be commingled.
Conducting Business in the Corporation’s Name. It is important to conduct business in the name of the corporation to let the public and parties with whom you do business know that your entity is a corporation and not a sole proprietorship or partnership. Use the full name of the corporation when identifying your entity. This is particularly important on contracts, purchase orders and written agreements.
Piercing the Corporate Veil. Shareholders of closely held corporations which do not observe these and other corporate formalities may find themselves subject to a “piercing the corporate veil” claim, whereby a creditor or other person who holds a claim against the corporation seeks to hold one or more shareholders of the corporation personally liable for the claim. The theory behind a piercing the corporate veil claim is that by failing to follow corporate formalities, the lines of distinction between the corporation and the shareholder are blurred or nonexistent, and the shareholder is essentially the alter ego of the corporation.
Steps which should be taken by the corporation and shareholders to reduce the risk of a piercing the corporate veil claim include making sure that the corporation’s annual report is properly filed with the Department of Financial Institutions each year, properly filing state and federal tax returns for the corporation, conducting the corporation’s business in the name of the corporation, avoid commingling of bank accounts and other assets, holding shareholders’ and directors’ meetings in accordance with the corporation’s bylaws and state statutes, and making sure that the corporate minute book is up to date.
Annual Reports. Every corporation which is organized in Wisconsin or registered to conduct business in Wisconsin must file an annual report with the Wisconsin Department of Financial Institutions, and pay an annual filing fee of $25.00. The annual report includes basic information regarding the corporation, including the name and address of the registered agent and registered office, the corporation’s principal business office address, the names and addresses of the corporation’s officers and directors, and the number of authorized and issued and outstanding shares of stock. The annual report form is filed electronically through the Department of Financial Institution’s website.
Annual Shareholders’ Meeting. Corporations organized under Wisconsin law are required to have an annual meeting of the shareholders. Written minutes from the annual shareholders’ meeting should be prepared and kept in the corporate minute book. Matters addressed at the annual shareholders’ meeting typically include the election of directors, a review of the recent financial performance of the corporation and ratification of the actions of the officers and directors during the preceding year. Closely held corporations (particularly those with only one or two shareholders) sometimes dispense with the formality of conducting an annual shareholders’ meeting, by having the shareholder(s) sign a written “consent resolution” adopting resolutions which would have been adopted at the annual shareholders’ meeting.
Meetings of the Board of Directors. Regular meetings of the board of directors should be held in accordance with corporation’s bylaws. Written minutes of the meeting should be prepared and kept in the corporate minute book. Meetings of the board of directors should be preceded by notices to the directors, stating the date, time and place of the meeting. An annual meeting of the board of directors should be held (in addition to regular meetings of the board, in accordance with the bylaws). Business conducted at the annual directors’ meeting typically includes the election of officers and the ratification of actions taken by the corporation’s officers during the preceding year. Other matters which may also be addressed at the annual meeting of directors include the determination of compensation for officers of the corporation, and a review of anticipated capital expenditures and corporate borrowing for the ensuing year.
Avoid the Commingling of Assets. Closely held corporations, particularly corporations where there are only one or two shareholders, sometimes fall into the trap of commingling personal and corporate assets. Separate bank accounts should always be maintained for the corporation. Corporate and personal funds and assets should not be commingled.
Conducting Business in the Corporation’s Name. It is important to conduct business in the name of the corporation to let the public and parties with whom you do business know that your entity is a corporation and not a sole proprietorship or partnership. Use the full name of the corporation when identifying your entity. This is particularly important on contracts, purchase orders and written agreements.
Piercing the Corporate Veil. Shareholders of closely held corporations which do not observe these and other corporate formalities may find themselves subject to a “piercing the corporate veil” claim, whereby a creditor or other person who holds a claim against the corporation seeks to hold one or more shareholders of the corporation personally liable for the claim. The theory behind a piercing the corporate veil claim is that by failing to follow corporate formalities, the lines of distinction between the corporation and the shareholder are blurred or nonexistent, and the shareholder is essentially the alter ego of the corporation.
Steps which should be taken by the corporation and shareholders to reduce the risk of a piercing the corporate veil claim include making sure that the corporation’s annual report is properly filed with the Department of Financial Institutions each year, properly filing state and federal tax returns for the corporation, conducting the corporation’s business in the name of the corporation, avoid commingling of bank accounts and other assets, holding shareholders’ and directors’ meetings in accordance with the corporation’s bylaws and state statutes, and making sure that the corporate minute book is up to date.