A corporation does provide limited liability to its officers, directors, and share holders. However, improperly recorded minutes can result in “piercing of the corporate veil.” This means officers, directors, and shareholders can be named in a lawsuit, which may hold them personally liable for corporate debts.

Corporate minutes also help distinguish between expenses and dividends. Expenses may be written off, while dividends are not deductible. If a discrepancy exists, the IRS, generally, will take a position adverse to the question of the expense which may change the expense to a dividend resulting in double taxation for the shareholders. In addition, if a corporation fails to keep minutes, the IRS can consider the shareholders of a closely-held corporate as individuals not operating as a corporation. This may lead to an allocation of net income to the shareholders at higher individual rates.

Corporate minutes may support justification of reasonableness of an employee’s salary rather than a disguised dividend. Also, minutes can justify increases in salary due to job performance or exceptional skills. The imposition of an accumulated earnings tax may be waived if the corporation shows that accumulation was for a valid business purpose. A properly maintained minute book also substantiates fringe benefits, and employment law liabilities.

While accurate corporate minutes may help to prove the existence of a corporation in a lawsuit, they can settle internal disputes as well, for example, the acceptance of contract, approval of mergers, authorization of loans, and compliance with governmental regulations. The corporate minutes are in place to inform and to protect the employees of a corporation. Basic topics for inclusion in the minutes are:

• Election of the board and officers
• Statement of corporate policies
• Declaration of dividends
• Authorize contracts involving the corporation
• Compensation of officers and key employees
• Loans to or from officers or shareholders
• Plans liquidating or reorganizing the company
• Intended use of corporate retained earnings
• Purchase, lease, or sale of assets, including property
• Write off of accounts receivable as bad debts
• Acquisition or sale of treasury stock
• Investigation of new business opportunities
• Start of business operations in other states
• Initiation, amendments & termination of retirement plans
• Issuing and selling stock
• Approval of financial statements

Patsy Iezzi, Attorney at Law | Certified Public Accountant

This sophisticated operation involves the use of an official looking letter that comes in the mail (see a sample here). It likely will have your state corporate number and the date you incorporated. Typical headings at the top may read “Annual Minutes Requirement Statement Directors and Shareholders (For Profit Corporations)” or “Annual Minutes Disclosure Statement”.

The second page requests a check made out to “Florida Corporate Headquarters” and/or “Compliance Division”. This letter has turned up in a number of states. Sounds pretty official, almost like a government agency.  Except it’s not!  In small print you will see the disclaimer: “This product has not been approved or endorsed by any government agency and this offer is not being made by an agency of the government.”

Several Attorney General offices are looking into the matter, but the letters are still turning up and creating problems, judging by the volume of complaints found on blogs. Not only do you lose your $125-$200 “filing fee” you also but your personal and corporate into the hands of obviously unsavory characters.

What to do if you receive one of these letters?  First, verify that it is fraudulent by contacting your state Division of Corporations and determining if they have any such requirement. Compare the return address to this list of know scam locations:  Annual Minutes Requirement Scam

Second, contact your state Attorney General to file a complaint. Once enough complaints are found the state may take action and/or refer for prosecution.

Most states require you to file an “Annual Report” that they use to track your corporate status. Usually your fee will be paid to the State or a recognized state department. You are usually NOT required to file corporate minutes with any state agency. You ARE required to maintain records of your annual minutes — that’s why you use software like QuickCorporateMinutes to be legally compliant.

The safe, effective method to do your Annual Minutes:  Quick Corporate Minutes 4.0 (recommended by CPA’s and legal professionals).

Minutes of meetings are easy to prepare. They do not normally need the help of a lawyer or CPA. You need to convene a shareholder’s or director’s meeting (in accordance with the requirements in your corporate bylaws). Then clearly write out the decisions approved by your board of directors or shareholders. Although it is possible to do this using fill-in-the-blanks forms, it is much simpler to use an automated software package such as QuickCorporateMinutes. It makes even more sense since the minutes are legal documents where ” boilerplate language” needs to fit the need. The last step is to place a copy of the minutes in your corporate record book.