LeapLaw Ledger's Archives | About LeapLaw | Contact Us

Corporate Maintenance Note: You must be a LeapLaw subscriber or free trial user in order to access most of the links contained in this article. If you'd like to sign up for a free trial, see below. Corporations are considered by law to be a separate entity from its stockholders, officers and directors. One of the main benefits of incorporating is the limited liability protection offered to a corporation's stockholders, so long as the corporation follows certain legal requirements pursuant to the laws of the state of its incorporation; with this protection, only the value of a stockholder's interest in the corporation is ever at stake. However, if the corporation abuses its rights, a court may hold stockholders liable beyond their investment for obligations of the corporation, using a legal theory known as "piercing the corporate veil". This theory is most often applied when stockholders have failed to recognize the "separateness" of the corporation and have either used the corporation for personal purposes or for unlawful purposes by failing to (a) supply it with adequate resources, (b) observe corporate formalities such as holding annual meetings of stockholders and directors, (c) keep separate record books of the corporation, and (d) distinguish corporate assets from personal asset, and (e) issue stock. State laws generally require that corporations hold at least one meeting of stockholders and one meeting of directors annually. The Annual Meeting The requirements of annual meetings vary depending upon whether the company is a public company. Generally, there is an annual meeting of stockholders and one for directors which are held within a certain time following the fiscal year end so that the financial performance of the corporation for the previous fiscal year may be reviewed in a timely fashion. State laws, the charter and/or the bylaws may provide for a date and place (i.e. inside or outside the U.S.) where the annual meeting will be held, or may provide that the directors may determine the meeting date. There are two ways to meet the requirement of an annual meeting. Depending upon state laws, annual meetings may be held by written consent or at a meeting held for such a purpose. The manner chosen will depend upon (a) whether or not the company is public; (b) the provisions of state laws, the charter and the bylaws of the company; (c) the number of stockholders and (d) preference. Holding an Annual Meeting If an annual meeting is to be held, the stockholders' meeting will generally take place immediately before the annual directors' meeting, so that the newly-elected directors may participate in the directors' meeting. Once the meeting date for each is set (which may be the same date for each meeting), notice of the meeting must be provided to all stockholders or directors, as the case may be, or a waiver of notice of meeting must be obtained, if the date is not provided in the bylaws. Public company annual meeting requirements are governed by regulations promulgated by the Securities and Exchange Commission (SEC) and are much more stringent than those of private companies. Annual meetings for public companies take careful planning to assure that the record date is set properly and that the stockholders receive notice of the meeting and proxy materials. Proxy materials must also be delivered to the SEC and any securities exchanges on which securities of the corporation are traded. For more information see LeapLaw's Public Company Annual Meeting and Maintenance Best Practice Summary Meetings Held by Remote Communications In states where the law does not permit corporation's to take certain actions by written consent in lieu of holding a meeting, the law may allow meetings to be held by remote communications such as the Internet, teleconference or via telephone. For instance, Delaware statutes permit meetings to be held via "remote communication" as do several other states noted on LeapLaw's 50 State Consent Drafting Chart. The Delaware statute (8 Del. C. 211) establishes certain requirements for online stockholder meetings including the requirement that corporations implement reasonable measures to insure that stockholders are deemed present and permitted to vote by remote communications Sample Director's Annual Minutes Sample Stockholder's Annual Minutes Action Taken by Written Consent Many state laws provide for action to be taken by stockholder and directors by written consent in lieu of holding a meeting. To determine if a state allows for written consents, check LeapLaw's 50 State Consent Drafting Chart. Closely-held (private) corporations, if permitted by state law and the charter and bylaws, often choose to take action by written consent in lieu of meetings. Action Taken by Consents in Lieu of Meeting Though each corporation's consents will vary, the consent typically should include: Preamble. The consent preamble should state that the action is being taken "by written consent of [unanimous] [majority] of [stockholders/directors] in lieu of an annual meeting” and that such action(s) shall have the same force and effect as if taken at a meeting. Resolutions. A statement of the resolutions that are being approved. At the annual meeting, at the very least, the stockholders will elect directors for the upcoming year; and the directors will elect officers for the upcoming year. In addition, a ratification resolution should be included that will authorize all actions taken by the officers and directors in the prior year. Other matters may also be raised at the annual meeting; and Best Practice Tip: Search resolutions by clicking the radio button "resolution" in LeapLaw's search box and insert the name of the resolution you need. Closing Line and Signatures. The closing line of the consent may state that: "This consent has been executed in one or more counterparts and shall be filed with the minutes of the meetings of the [directors] [stockholders] of this Company and shall be treated for all purposes as actions taken at a meeting." Typically, consents may be signed in counterpart (separate signature pages), making it easier to obtain signatures of stockholders or directors in scattered locations. If there is only one signatory, delete the phrase [has been executed in one or more counterparts and] from the closing line. BEST PRACTICE TIP: It is considered good record keeping to stamp the blank signature lines on counterpart signature pages with "counterpart signatures" to indicate that all signatures have been obtained. Staple all signatures together with the consent and file originals in the minute book. If there is only one signatory or all signatures are on one page, counterpart language may be deleted. Sample Director's Annual Consent Sample Stockholder's Annual Consent Joint Consents When the directors and stockholders are the same or predominantly the same people, you may choose to prepare a joint consent. A joint consent is a written consent of stockholders and directors combined into a single document. Such joint written consents are typical in small, closely-held corporations. Sample Joint Annual Consent Annual Reports As part of annual corporate maintenance, most states require the filing of an annual or franchise tax report. These reports are not only due in the domestic state, but will also be due in each foreign state in which a corporation is qualified to conduct business. State annual report forms are available at LeapLaw's Corporate Connection or through your preferred service company. Note that annual reports due to secretaries of state of domestic and foreign states are separate and distinct from a public company's requirements to file annual and quarterly reports with the Securities and Exchange Commission. Franchise or Corporate Tax A franchise tax is imposed on corporations, limited liability companies and other businesses in states in which it is incorporated or qualified (in the case of corporations) and formed or registered (in the case of limited liability companies). This tax may be referred to variously as excise tax or franchise tax. Rates of taxes also vary from state to state. "Green Heart Attack" Delaware's franchise tax for corporations (limited liability companies and limited partnerships pay a flat $200 tax annually by June 1st) is assessed on their annual reports, which are due by March 1st each year for the prior calendar year. The corporation may receive an annual report that states several thousands of dollars of tax due. Some people refer to this as the "green heart attack". The state computes franchise tax based on a company's authorized shares. The total assessed by the state may be drastically reduced by using the alternative calculation method, known as "assumed par value method". You may use the Delaware Franchise Tax Calculator or your preferred service company may assist in the calculation. Annual Checklist for a Small Private Corporation For small businesses, a corporate maintenance package would include: Check the status of the company at the secretary of state's office using LeapLaw's Corporate Connection (corporate searches, status and name availability on drop down menu) to see if the company has filed all prior annual reports. You may also get current information on the company (i.e. business address, corporate officers, directors, etc.) for the annual report. Check the minute book to see if annual consents have been prepared for prior years. If not, the consents you are currently preparing can cover more than one year by stating it in the heading. For instance, the title of your consent will read something similar to: "WRITTEN CONSENT OF DIRECTORS IN LIEU OF [YEAR] ANNUAL MEETING". You may insert one year or several years (i.e. 'WRITTEN CONSENT OF DIRECTORS IN LIEU OF 2001, 2002 AND 2003 ANNUAL MEETINGS)". Prepare annual reports for years required. Send package to client using LeapLaw's sample cover letter. Recordkeeping Original consents and minutes are filed in reverse chronological order (newest minutes first) in the company minute book. Date-stamped annual reports should be filed in the Annual Report section of the minute book.

ABOUT LEAPLAW™

LeapLaw™ gives business lawyers and paralegals quick access to core legal resources, initial drafting documents, best practices and procedures that they need to do more work in less time.

SUBSCRIPTION INFORMATION

For more information on becoming a LeapLaw subscriber, please contact us at 508-275-9150 or via e-mail at

If you would like to be removed from this distribution list, please reply via e-mail and insert "remove" in the title line. We apologize for any inconvenience.

LeapLaw, Inc., 738 Main Street, Unit 201, Waltham, Massachusetts 02451-0616