Today, Shawn talks about corporate formalities, and the huge cost it can have. We’ve seen this over and over again in my career and my legal practice, and it then stretches into my business management and consulting work as well. We need to have good formalities with our entities because it can cause huge problems.
A lot of people get bored with the paperwork and legal documentation required to properly run a company and let me tell you, it’s not a lot of fun. As a long time lawyer, I’ve seen the paperwork come through many times and you know, I’m good at it, it’s something I do, but it’s not necessarily something innovative or interesting and a lot of business owners are going to want to innovate and interesting things in their business. It’s really not their fault, they want to do other things. But I will tell you, it is very important to have those formal documents for a couple of reasons.
Number one, it shows who owns what. I mean these are the evidence of ownership. I’ve had cases where clients have had multiples companies involved, and sloppy records are kept. Then it becomes a huge problem over who owns what and how does the enterprise work because nobody was keeping proper books and records of how the company was to run.
Additionally, those formalities can be important in liability cases. Courts will go back and look at those documents, those things that people didn’t want to deal with, that they were bored by, and they become critical in the event of litigation, and they’re looked at so, we need to have formalities. Now, it doesn’t have to be you, that’s what’s beautiful. You don’t have to be the one doing all the compliance work, it could be your attorneys, outside counsel, or it could be other people on your team. There are a lot of different ways to get those documents done. But what we want to focus on is indeed getting those documents done, we need to have the formal documents or else we’re going to have problems. It’s basic blocking and tackling. Minor stuff could have prevented huge problems later. So I want you to focus on this, I want you to get it right, and if you’re not doing this, get a team involved. Don’t do it yourself because you probably don’t want to do it if you haven’t been doing it. Get other people to help you, and do something great with your business.
Each case is unique. Past results do not guarantee future outcomes. This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. FreeImages.com/photographer Imre Vegvari.
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