There are several benefits of conducting business as a corporation, including the liability protection it provides. That is, shareholders generally are not personally liable for the debts and obligations of the corporation.
This protection is lost, however, if a court determines that the “corporate veil” should be pierced, and shareholders should be held personally liable.
One method of piercing the corporate veil is by showing that the shareholders did not properly maintain corporate formalities. Failure to keep adequate corporate minutes is one factor in not satisfying the requirement of maintaining corporate formalities.
In addition, claims against corporate directors have shown the crucial role corporate minutes can play in determining whether directors have met their fiduciary obligations.
The Nebraska Model Business Corporation Act requires each member of the board of directors to discharge his or her duties as a director
(a) in good faith,
(b) in a manner the director reasonably believes to be in the best interests of the corporation, and
(c) with the care that a person in a like position would reasonably believe appropriate under similar circumstances.
Oftentimes, corporate minutes serve as the best record of actions and deliberations of the board of directors in connection with their fiduciary obligations.
Failing to maintain corporate minutes that reflect the considerations and actions taken by the shareholders and directors may result in a court ignoring the corporate existence or finding the directors failed to meet their fiduciary obligations, resulting in personal liability or responsibility.
If you have questions about maintaining corporate formalities or if you would like assistance with preparing corporate minutes, contact Payton Hostens at [email protected].