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).

2ND STEP - Take a few minutes each month to review your corporate paperwork. If you took action without holding a board meeting hold a board meeting after the fact asking the board to accept your decision. Don't forget the Minutes of the meeting (Note: There are several examples of Board and Stockholders Minutes in the Corporate Forms on CD).

3RD STEP - Set up reminders to hold your crucial meetings each year (Annual Stockholders Meeting and Annual Board Meeting)! Be sure to hold them on the dates and times stated in your corporate bylaws. If you don't like the dates and times, be sure to follow the procedures laid out in the bylaws before changing them.

Have some fun with this. In other words hold your board meetings or stockholders meetings someplace other than your office! Be careful and review this with your accountant before you decide to hold it in Tahiti and write it off as a corporate expense! (Note: To find a good accountant who can answer these questions go to SmallBiZ eMarket and search for an accountant in your area)

NOTE: Your formation state will require some sort of franchise tax or annual fee and often the completion of an annual report or statement. Some states even require a filing of a statement plus an additional fee immediately after the filing of your corporation (i.e. NV & CA). Check with your registered agent or if you are acting as your own agent, with your state, to make sure you are always up to date with these filings.

FINAL SUGGESTION - If your company consists of just you (less than say three shareholders and directors) consider asking others to join your board of directors. Ask someone who you look up to and in an area you are not as knowledgeable (your accountant a respected business person or politician in your community a professor etc.). Besides gaining another mind to run ideas or decisions by you gain a certain respectability (imagine when you go to a lender or investors how much better you will look) that wouldn't be there if it was just you. Most important your company looks more legitimate to an outsider such as the IRS or the courts. How do you pay them? Many would be willing to do it for free just because they want to help. Perhaps, they would be interested when you tell them that your annual meeting is in Tahiti?