Wealthyist E20 | Spring Cleaning Your Corporate Records
This episode of Wealthiest, hosted by Alec Durand and Brian Lamborn, attorneys at Annex Wealth Management, focuses on the importance of "spring cleaning" for corporate records, particularly for small business owners. They emphasize the need to maintain and update corporate paperwork to ensure legal compliance, protect personal assets, and enhance business efficiency. Key points include:
- Importance of Corporate Records: Corporate records, such as operating agreements, articles of organization, annual meeting minutes, and employee-related documents (e.g., W-4s, payroll taxes, ERISA/401k records), are critical for maintaining the liability shield provided by entities like LLCs or corporations. This shield protects personal assets from business liabilities, such as those arising from an auto repair shop.
- Legal Formalities: Observing corporate formalities, like holding and documenting annual meetings and filing annual reports (e.g., in Wisconsin), is legally required to maintain an entity’s good standing. Failure to do so can erode liability protection or lead to delinquency, though issues can often be corrected.
- Record Retention: Businesses must retain records for varying periods—three years for IRS audits, six years for ERISA-related documents. These records support tax filings and track business growth or inefficiencies.
- Efficiency and Review: Regularly reviewing contracts, leases, vendor agreements, and buy-sell agreements ensures they align with current business needs. Buy-sell agreements, which outline what happens if an owner dies, becomes disabled, or exits, are particularly important for multi-owner businesses to avoid disputes or court involvement.
- Alignment with Personal Plans: Corporate records should align with estate plans to avoid conflicts, such as restrictions on transferring business interests to heirs.
- Simplifying the Process: The hosts suggest setting aside time annually (e.g., after tax season) for a review, which doesn’t need to be formal—a dinner meeting can suffice. Creating a checklist, leveraging key personnel (e.g., HR or operations managers), or consulting professionals like attorneys or CPAs can streamline the process.
- Winding Down Unnecessary Entities: Businesses should dissolve unused LLCs or corporations to avoid liabilities and simplify record-keeping.
The episode underscores that maintaining corporate records is an ongoing, repeatable process that, while initially daunting, becomes manageable with a system in place, allowing business owners to focus on running their operations confidently.
