OK, you now have a corporation and you're excited because of all the taxes you're going to save or the liability protection you've just built around you and your personal assets or you just think it's 'cool' to be called "President!" Let's talk about the not so fun part... The paperwork!
Whether you just started or you've been running your corporation for a while you must take care of your corporate paperwork (setting up bylaws recording minutes of important board or stockholder decisions holding annual board and stockholder meetings and just running your business as if it were a miniature of IBM)! If you do not one of several outcomes could occur the worst ones being:
1. The IRS upon auditing your corporate tax return AND corporate paperwork declares your corporation invalid. All company income for potentially all the years of operation is considered "Personally Earned Income." You would then owe all back federal state and self-employment taxes plus interest plus penalties for ALL the years that you owe! Ouch!
2. The Court finds during a hearing/trial (lawsuit bankruptcy etc.) that your corporation is invalid and all of your corporate liabilities become yours personally even if you didn't personally sign for them. Or that your corporation does not shield your personal assets from your corporate creditors!
These are worst case situations, but they can happen and do! How do you avoid these pitfalls? Take these three simple steps:
1ST STEP - Before you make a major corporate decision (open a new bank account borrow money sell stock purchase equipment or real estate etc.), ask yourself "Am I authorized to make this decision?" Yes, this may seem strange if you are the sole shareholder but necessary. Have you documented this authority? If you have a corporation, you must follow proper company procedures. This includes: issuing notices or waivers of shareholders & organizational meetings; holding shareholders & organizational meetings; adopting bylaws; issuing stock; and documenting every important action). Don't have corporate bylaws? Haven?t done any of this paperwork? They are required! (Note: If you don't have any of these organizational paperwork, order our
Corporate Forms on CD. Forms on CD will help you with all your organizational paperwork as well as other corporate forms. Set up in MS Word, MS Works, and WordPerfect formats).
