Everything You Need to Know about Corporate Records
There’s an old joke still whispered about that when you become an officer and administrator in a corporation, you unwittingly join a religion with an extremely terribly and demanding god. This god is the god of paperwork, and it cannot be denied. If you neglect to submit to this god’s demands, you’ll end up losing the corporation in the end.
It may seem an exaggeration to think of corporate paperwork in this fashion if you’re not part of the leadership tier in a corporation. But when you are part of that leadership for the first time, you may very well be unpleasantly surprised by the sheer amount of paperwork you have to deal with. You have the annual reports, the business ledger, and the various tax forms. These are just the tip of the iceberg.
The word tedious is often not enough to describe the utter monotony of coming up with and maintaining all these records. It feels like all the paperwork efforts you put in to keep you from doing your “real job”. But the reality is that, like it or not, this is part of your real job. The paperwork is necessary if you want to remain compliant with various regulations.
What Are Corporate Records?
Basically, the term “corporate records” pertains to all the documents that are deemed vital for your business. These documents start with the absolutely required articles of incorporation. Without this, you can’t even legally continue to operate your corporation.
Then you have the corporate bylaws, the business ledgers and tax returns, and even the minutes of each board meeting. After these documents, you still have more.
The law requires all corporations to maintain a detailed corporate record. It’s simply mandatory. Fail to do so, and you can end up in serious legal trouble. Either you make yourself a lot more vulnerable to lawsuits, or the state may even forcibly dissolve your corporation.
Exactly Why Must These Records Be Maintained?
There are actually practical reasons for the need to keep these corporate records, aside from the fact that it’s also mandated by law. Keeping these records actually helps your business survive and thrive.
One simple proof of this is when you maintain your tax records from previous years. This is to protect you from any IRS snafu if they somehow get the idea that your business hasn’t paid its taxes properly. Your records can prove them wrong. Also, with these previous tax records to consult, you’ll find it easier and faster to complete your future tax returns.
These records also monitor the progress of your corporation over time. It will show you if your business is growing as you have predicted, and it can also identify problems along the way.
If you’re planning to sell your company, then you better be able to prove what your company is really worth. The only accurate way to do that is to maintain your records faithfully, so you can backup the price you have in mind. Without these records, potential buyers won’t really know how profitable your company really is (or if it is profitable at all).
Of course, these records also strengthen what the business community refers to as the corporate veil. This is what divides your corporate assets from your personal assets. Keep in mind that when you incorporated, protecting your personal assets was one of your main objectives. You don’t want creditors who lent money to your business to tap your own bank account to pay for those debts.
Which Documents Have to Be Part of Your Corporate Records?
The exact documents may vary depending on your particular situation. First, it depends on your state, which may have different corporate records requirements than other states. At the very least, your corporate records must contain all these documents that your state deems “essential”.
Then it also depends on the industry your company is part of, as well. You may also want more detailed records for easier sales in the future, and to be able to find more investors and shareholders once you try to issue shares in your corporation.
A bank may also demand income statements, balance sheets, and personal and business tax returns for the last few years, as well as projected balance sheets, income statements, and cash flow statements.
At the very least, you should maintain the following documents as part of your corporate records:
- The articles of incorporation, along with any amendments
- The corporate bylaws
- Copies of the annual reports
- Minutes of annual shareholder meetings
- Minutes of every board meeting
- Records of resolutions, which are the important decisions made by the board of directors (like a large number of hires or layoffs, major changes in policies, and acquisition of property)
- Employment tax records
- Income tax records, with documents to justify all your deductions
- Bank and credit card statements
- Accounting records
- HR records (such as for applicants, hired employees, and terminated workers)
Keep in mind that this list of documents is by no means complete. This is probably the bare minimum.
So, how do you know if a certain document or record needs to be kept? Ask yourself these questions:
- Can this document be needed for an audit?
- Can it help you with a lawsuit?
If you answer yes to just one of these questions, then you should keep that document.
Who Creates These Records?
That depends on the particular documents, though it’s safe to say that the creators of the documents are normally part of the company.
- Board of directors – responsible for the bylaws, resolutions, and annual reports
- Corporate secretary – records the minutes of each board meeting
- Accountants – create and maintain various financial documents
- HR manager – responsible for the HR documents
Keeping Your Corporate Records
You can choose the record-keeping method that suits you best since the law doesn’t exactly say how you must keep your corporate records. You just have to make sure that these records are complete, well-organized, and secure.
The most common way to keep these records in the past is to print hard copies. Today, these are also backed up by electronic copies. That way, you’re protected if your paper copies get damaged, or if your computer files are deleted.
The good news is that you don’t have to keep these records forever. That would be impractical, especially for really old companies that were established way back in the 1700s. The IRS recommends that you keep your records for at least 6 years, though you may want to maintain them longer just to be safe.
Of course, with electronic records, you can maintain these records a lot more efficiently even for decades. Just make sure your records are also secure from hacking.
The god of paperwork can be a cruel taskmaster, but it’s a god you must appease. Do so, and you’re blessed with good standing with the state and fewer lawsuits to worry about. Fail to do so, and it may well result in an apocalypse for your corporation.