Life zooms by. Decisions are made, acted upon and forgotten – like the seasons spring, summer, fall and winter.
Most businesses are a separate legal entity. They file their own tax return, make decisions, hire people and have a life separate from the owners. Corporate minutes strengthens the separateness or “corporate shield” providing legal protection to the owners. By law a corporation holds a corporate meeting once a year. The minutes are documented legal proof that it happened. They also support the tax treatment for transactions that have occurred. They are also a great way to note the businesses history.
So, what do you include in the minutes:
- Shareholder compensation. Note salary and bonuses for Officers and Shareholders. Distinguish this from company profits. They are taxed differently.
- S shareholder distributions: Document amount and who, when. For S corporations ensure that the distributions are in line with the ownership percentages.
- Employee benefits such as Retirement plan, health insurance, etc. Document any changes, elections, matching and any optional profit-sharing contributions that were made for the year. This includes changes in the plans, carriers, insurance agent, limits, etc.
- Life Insurance Coverage held by the company: Document any additions or changes in the plans and the purpose of the insurance.
- Shareholder loans: Ensure that the company holds a current loan document and all new loans and loan payments are noted in the minutes. On loans greater than $10,000 the IRS requires that interest be applied. This is to ensure that the IRS properly classifies monies provided by shareholders as loans instead of additional capital.
- New loans or lease agreements: Note the new agreement, the terms and if there was a personal guarantee within the minutes.
- Document major investments: Note description, value, date placed in service and purpose of land and/or buildings purchased, leasehold improvements, equipment and/or vehicles purchased, sold or traded in. For accounting purposes this ensures that the assets are properly reflected on the financial statements.
- Elect Corporate Officers and Directors for the next year: President, Vice President, Secretary, Treasurer and Company directors. This information is used to prepare the annual report filed with the State of WI.
- Review Shareholder Agreement: Is it still relevant? Is it funded in case of death and/ or disability? Is the valuation method defined, fair and easy enough to define? This is critical for non-shareholder spouses, allowing for business continuation, and provides for a possible disagreement within the shareholders.
- Any other significant changes to the corporate structure or business: Starting a new location, changing banks, accountant, insurance agent, retirement plan advisor, etc. Other items may include expanding, building up funds for a future expansion, changes in a related company that will have an impact, etc. Just a reminder to look to the future – future cash needs, future market opportunities, etc.
Corporate minutes can be used as a management tool. They rarely are. Taking the time to have a meeting allows shareholders to define their expectations. If you are the only owner it is a time to step back, note where you have been and where you are going. Life moves quickly – be sure you are going in the direction you choose.
We can assist you with the corporation meeting requirement. Set up an annual strategy meeting. We can review your year-end financial statements, the changes, document the meeting and include the facts above. TA DA you’re done and in compliance. Call us to set up a time to meet.
By Mary Guldan-Lindstrom, CPA