Annual Meetings

Annual meetings – those yearly intrusions into, and interruption of, your business.  It’s your business, and you wouldn’t have done or decided something if you had not “approved” it.  What is the point of holding a meeting or telling your attorney what you’ve done or authorized in the past year?

Well, there is a boat-full of potential liability that those annual meetings (or alternatively annual consents) can help the business owner avoid.  A judicial doctrine has evolved that permits a court to “pierce the corporate veil.”

Piercing the corporate veil generally occurs when the shareholders of a corporation (and the members of limited liability companies) disregard the “separateness” of the business entity and the business becomes nothing more than the owner’s alter ego.  In such a case, the owner becomes liable for the company’s debt, whether arising from contract or by tort (negligence).

Matters which should be documented on an annual basis includes loans to and from the owners, compensation (including bonuses) to owner-employees, adoption of qualified welfare or retirement plans, related party transactions, and such similar extraordinary acts.

Please read our article, “Piercing the ‘Veil’ of a Company’s Limited Liability.” Think of compliance with this relatively minor issue as a part of your insurance policy – protecting you – the owner, from potential liability.