Sunday, March 02, 2008

Maintaining Your Corporate Status in California - Part 2

This is Part 2 of an ongoing series designed to provide California corporations general information on how to maintain their corporate standing. In this edition, we will review observance of corporate formalities.

It is easy to underestimate the importance of maintaining the formal integrity of your corporation. It is a separate and distinct entity. All important transactions in your business should be reflected in the corporate minutes. All contracts, including employment contracts, loans, and leases, should be made in the name and on behalf of the corporation. They should be memorialized by appropriate minutes in the corporate Minute Book. When signed, these documents should be kept in the Minute Book.

Without limiting the significance of the foregoing general caution, it is most important to realize that you are required formally to consider, review and act upon the following:

Salary and Bonus. It will be essential for you to establish and adjust, from time to time, the salaries and any bonuses for yourself and other employees of the corporation. A periodic review should be made.

Issuance of Additional Shares of Stock. Suffice it to say, taking in a new shareholder is a serious matter. Before a commitment is made to issue stock to anyone, we advise that you contact legal counsel and your accountant, and an appropriate agreement can be drafted. The should be thoroughly studied before any commitments are made.

Use of the Corporate Seal. Although there is no legal requirement that a Corporate Seal be used on any documents, many financial institutions require that it be used on corporate resolutions, loan documents, notes, and the like.

Loans to Employees. Loans to employees should be well documented. Promissory notes should be used to evidence the loans. Copies should be given to your attorney and your accountant.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. If your California corporation requires assistance with any of the topic outlined in this article, please feel free to contact us.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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