What are Corporate Formalities?
Corporate formalities are largely a creature of statute. Often, they encompass holding annual and special meetings, accurately documenting the minutes of those meetings, and maintaining certain corporate records at their principal place of business.
The types of formalities your business must adhere to depends on the structure of the business itself. For example, all Florida Corporations must adhere to the provisions of Florida Statutes Section 607, and specifically the record keeping requirements of section 607.1601.
While statutes are often easy to read and defer to, business owners often do not know where to look. They fail to read the statutes in their entirety and fail to fully comprehend how all the statutes work together. Allow us to elevate that burden for you. Should you opt not to retain us to help create, maintain, and store your records, we are more than happy to empower you and your team with the knowledge to correctly adhere to these formalities inhouse.
Why Follow Corporate Formalities?
In Florida (and most states), special types of business entities enjoy a “shield” from personal liability in most cases. Most commonly, legal entities such as corporations, limited liability companies (LLCs), and Limited Liability Partnerships (LLPs) enjoy this protection. Put simply, this means that you cannot be sued personally for the debts of your business.
Importantly, there are exceptions to this general rule. If a shareholder, creditor, owner, employee, or otherwise can successfully “pierce the corporate veil” a Court will allow them to be sued in their individual capacity.
Florida Courts generally require three elements in order to “pierce the veil” of a business entity. They are: (1) a lack of separateness between the corporation and its shareholder(s); (2) improper conduct in the use of the corporation by the shareholder(s); and (3) that the improper conduct was the proximate cause of the alleged loss. Piercing the corporate veil is not an independent cause of action, but rather an equitable doctrine allowing for recovery from the owners themselves.
While the failure to follow corporate formalities in and of itself is not enough to “pierce the corporate veil,” it is often considered in establishing the first element. Courts will be looking to see if the legal entity was so closely aligned with the person interests and actions of its owner, that it cannot be rightfully considered an independent entity. In addition to comingling funds, failure to follow corporate formalities is the most important factor in making that determination.
Protect yourself and your business by letting us handle the formalities for you. We can be retained in a variety of ways to make sure that you never forget to schedule an important meeting, never forget to document that meeting, never fail to keep the appropriate records at your place of business, and above all things, never get your veil pierced.