Happy New Year! I wish everyone a happy, healthy, and prosperous new year.
With the New Year upon us, I would like to take the opportunity to remind any shareholder, director or officer of a California corporation of some of the obligations of conducting business as a corporation in California, specifically as they relate to meetings. The California Corporations Code requires all California corporations to hold annual Shareholder and Director meetings and prepare written minutes of those meetings.
In civil litigation, when a plaintiff sues a California corporation and looks to “pierce” the corporation and extend liability to the owners of the business, one of the factors considered is how well the corporate structure was maintained. To this point, whether the corporation held annual minutes is one of those questions. One other factor (of many) looked at when trying to pierce the corporation is whether the entity commingled funds – used corporate assets to finance personal items. This paragraph is not intended to be an exhaustive list of factors used to pierce a corporation.
While California corporations are mandated to hold these meetings, California Limited Liability Companies (LLC’s) do not have these same strict requirements. However, it is in the best interest of any business organization – including LLC’s – to document its accomplishments, outstanding issues, and ownership structure, on a yearly basis. Therefore, I recommend the implementation of an annual meeting and minutes procedure for not just California LLC’s, but partnerships and other business structures as well.
As briefly mentioned above, the minutes help document the business’s accomplishments, existing business – including legal – issues, and ownership structure, and should also highlight the entities activities of the past year and document any important changes to the entity.
Annual meetings may be held with or without counsel and can be held at any time of the year. The advantage of holding them at the beginning of the calendar year is it allows the entity to identify goals, management structure, and any other items it will face during the course of the year.