Just One Shareholder: Do I Really Have to have Corporate Board and Shareholder Meetings?
The short answer is “yes.” Even if you have only one shareholder in your California corporation, you must hold annual shareholder and board of directors meetings. That is what California law requires. There are also a host of practical reasons — good business reasons — to have shareholder and board “meetings.” Of course, with only one shareholder, there is no group of people to have a “meeting.” Thus, as a matter of practice, the “meetings” are on paper even though, at some point, you have to “meet” to sign the papers. Typically, the “meeting” is documented by a corporate resolution which often starts with words similar to this: “By unanimous written agreement of all shareholders who have met on this Day …” The purpose of the “meetings” is to create the various corporation minutes and resolutions which document what the corporation did. Your corporation is a separate legal entity and proof of what the corporation did is reflected in the minutes/resolutions. Thus, it is essential to conduct meetings and to maintain copies of corporate minutes/resolutions in your corporate minute book. An experienced and trusted San Diego corporate attorney can provide advice and assist with the paperwork.
The issue of meetings for a single shareholder is not uncommon. Many small-businesses have only one shareholder. There are several purposes of incorporating including:
- Receiving the protection of personal and family assets that the corporate shield provides
- Facilitating the establishment of a business credit rating
- Obtaining various income tax advantages
- Enhancing your business credibility and reputation
- Enabling financing
- Creating a vehicle for wealth transfer that is independent of you personally
- And more
However, all of these advantages are lost if you do not maintain your corporation properly and observe what are called the “corporate formalities.” Among the corporate formalities are the meetings of shareholders and the board. As noted, the purpose of minutes is to record the actions of the corporation. If the business enters into an office lease, for example, that is usually something that should be approved by the board of directors. As a practical matter, that is you — the sole shareholder and, probably, the sole director. It may seem pointless to have a “meeting,” but it is not. The meeting generates corporate minutes which is a written record of what your corporation decided to do — execute an office lease. Note that you did not execute the lease; your corporation executed a lease and there must be some record of what the corporation did. Years later, new shareholders can go back and see what the corporation did at the beginning of your corporation’s existence. Financial institutions will want to see corporate minutes even if there has been only one shareholder. If issues ever need resolution before a judge or arbitrators, the decision-makers will expect to see corporate minutes. Issuing stock dividends is another good example. The state and federal taxing authorities will insist upon corporate minutes and board resolutions. Otherwise, you are just taking money from your corporation. Again, “meetings” are held for the corporation to operate and conduct its corporate business.
Failure to observe the corporate formalities can result in the courts treating your corporation as a non-entity. That is, you and your family will lose the advantage of the corporate shield. So, yes, even a single-shareholder corporation must have shareholder and board meetings.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for businesses including formation and annual maintenance of corporate entities of all types. Mr. Leonard has been named a “Rising Star” for four years running by SuperLawyers.com. Call Mr. Leonard at (858) 483-9200 or contact him via email. Like us on Facebook.