You don’t need to document every routine business decision, however, you should prepare written minutes or consent resolutions for events or decisions that require formal board of director or shareholder participation. These typically include:
- The proceedings of annual meetings of directors and shareholders
- The issuance of stock to new or existing shareholders
- The purchase of real property
- The approval of a long-term lease
- The authorization of a substantial loan or line of credit
- The adoption of a stock option or retirement plan, and
- The making of important federal or state tax decisions.
By documenting important corporate decisions, you can protect your limited liability status, and you will have solid documentation if key decisions are later questioned by the courts, creditors, or the IRS. In addition, keeping good corporate records allows you to note the reasons for making critical decisions which can head off controversy in the future.
Please take note of the following examples:
Retained earnings example
C Corporations that want to amass funds for future projects rather than distribute earnings currently to shareholders should use corporate minutes to reflect the reason for accumulating earnings. Why? The tax law imposes a penalty on excess accumulations, which are earnings over a set limit ($250,000, or $150,000 for personal service corporations). However, to the extent earnings are retained for specific reasons explained clearly in corporate minutes, the penalty can be avoided if the accumulations are reasonable. For example: if funds are being accumulated to purchase property or to buy out the interest of an owner who is about to retire, the penalty will not be imposed as long as there is a record of this purpose and the amount of the set-aside funds is appropriate for the reason.
Record Retention example
We are often asked, “How long do I need to keep records?” When it comes to corporate minutes, our best advice would be – it is always a good idea to keep corporate minutes indefinitely so they are available for inspection by shareholders, government officials (such as the IRS) and others entitled to such access. For example: if the corporation adopts an “accountable plan” six years ago under which it will reimburse employee expenses in such a way that no income results to the employees, the adoption of this plan should be included in the minutes, just in case the IRS has questions. Even if you dissolve your corporation, at a minimum, you should retain corporate minutes for at least 7 to 10 years. In addition, as with all critical documents, keep the minutes in a safe location, such as a safe deposit box. If they are stored on a computer, be sure to have adequate back-up protection.