Tedious Resolutions and Corporate Record Books

One week into the New Year, how many of your resolutions remain intact? A recent news report highlighted the big business gyms and fitness clubs do in January – and the rapid fall off in February when human nature reverts to custom. Resolutions are hard to keep because they call us to do what is good or what we should, but rarely what we would if left to our druthers. At their best, resolutions are the little angel whispering encouragement over our right shoulder. At their worst, they’re simply tiresome nags.

As business lawyers, we push a familiar, nagging resolution every year as we chasten corporate clients to make amends and tidy up their corporate record books. Typically, we are met with promises that “this will be the year,” only to find the same dusty book untouched one year later. And can we really be surprised? Talk about a musty subject: “Corporate record books.” The phrase suggests a library shelf full of serial novels written by CPAs. Now that’s exciting.

But just like exercise and an improved diet, a “healthy” corporate record book really is good for you. Why? For at least two reasons. First, the time and energy you spend formalizing and documenting your corporate decision-making will, ideally, help you focus more clearly on whether you have been successful in meeting and implementing your business goals and in identifying new goals for the year to come. Second, and of particular concern to your lawyer, a well-maintained corporate record book is a critical piece in the shield that separates the activities (and liabilities) of a business from those of the business owner.

The primary reason we create business entities is to take advantage of this shield. But to be treated as an independent business entity, a company needs to act like one. In the eyes of the law, corporations and companies act through their owners, directors, officers or managers, who meet and conduct business per the business’s governing documents – all as reflected in the minutes found in the corporate record book. If you don’t observe the law’s formalities for creating and operating a business entity that is separate and apart from its owners, the law might similarly ignore you when you seek the protections that separation affords.

Tomorrow morning when you debate rolling over or crawling out of bed for the gym, make a mental note to pull that corporate record book off the shelf once you get to your office. And if you can find it in your heart to consider me the little angel on your shoulder – not a tiresome nag – all the better.