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Thursday, March 31, 2011

What are Corporate Formalities?

If you are like most business owners I know, you have way too many things on your plate and way too few hours in the day. So when you hear terms such as "Corporate Formalities", it is understandable if it's in one ear and out the other. So what exactly are Corporate Formalities and why are they important? The answer to the first question is fairly short and sweet, but the answer to the second... not so much.

  • Corporate Formalities are simply the actions that a business owner performs to demonstrate separation between the business entity (and its assets), and his/her personal activities and assets. Conducting regular reviews, proper documentation of reviews, meeting filing deadlines, keeping complete financial records, detailed meeting minutes, adherance to the corporation's bylaws and other governance requirements... are all key components in observing Corporate Formalities.

  • The Reason Corporate Formalities are important is that in order for a business owner to be fully protected personally by their Corporation or LLC, practicing Corporate Formalites on a regular basis is an absolute must.

  • Sadly, the failure to properly observe Corporate Formalities is one of the most common misteps amongst business owners, and potentially one of the most costly.

  • Failing to observe Corporate Formalities is essentially stating that there is no separation between the business itself, and you, the owner, as well as all of your private assets. If there is no demonstration of separation, the main purpose of the entity is completely negated and the business owner is left exposed, and at risk.

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