Why should I keep corporate records?

There are at least two important reasons for maintaining corporate records: to preserve a corporation’s limited liability for its stockholders and to be well-prepared for a potential investment or acquisition.

To preserve limited liability for its stockholders, a corporation at a minimum should do the following to treat the corporation as a true separate entity:

• Obtain and record stockholder and board authorization for corporate actions;
• Maintain complete and proper records for the corporation separate from the personal records of the corporation’s owners;
• Make it clear in all contracts with others that they are dealing with the corporation and not any particular individual; for example, by using the following signature block format on all contracts and agreements:

[NAME OF CORPORATION]

By: _________________________________

Name: ______________________________

Title: _______________________________

• Conduct all transactions between the corporation and its stockholders, officers, and directors on an arms-length basis whenever possible. The Board of Directors should approve any such transaction by a vote of the disinterested directors (or, if all the directors are interested in the transaction, by a vote of the disinterested stockholders), after all the facts material to the transaction have been disclosed; and
• Start the business with a sufficient amount of equity in light of the future capital needs of the business.

The other benefit of maintaining corporate records is that when your start-up needs capital or is looking to exit, potential investors and buyers will want to see everything and know everything about your company since its inception. By maintaining accurate corporate records, you can show potential investors and buyers a clear picture of the company’s actions and ownership. Corporate records are also required to back up the key representations and warranties the company will make in investment or sale documents and to ensure that the statements made to investors and buyers about the company are true, accurate and complete.

Poor corporate record-keeping may scare off investors and buyers, even if there are in fact no underlying risks or issues.