In the course of operating an entity, legal records should be kept documenting actions taken by the entity and memorializing the authority of the officers to take those actions on behalf of the entity. This serves the purpose of establishing a regular course of dealing by the enterprise as a formal enterprise and helps ensure separation of the entity’s activities from those of the owners or operators. It also serves to document that non-routine actions were authorized and were done for the enterprise despite the character of the actions as something other than what the entity routinely does in operations. (On a certain level, the goal here is just to create a paper record, as the very existence of that record tends to establish that there were regular and formal operations of the entity separate from the personal concerns and activities of its owners or operators.)
The materials posted recite a non-exclusive list of the sort of events that should generate a record. In addition, the materials outline the sort of form of work product that should result.
It is not a good practice to generate these records and not have them reviewed by legal counsel. My experience is that such a review usually turns up two situations.
The first is the matter the client did not want to call about but that has been bothering him/her. Usually that issue or matter is quickly and simply resolved.
The other situation is the matter that did not bother the client but that does bother me. Once I outline to the client why I find the situation bothersome, the client too sees the danger and wants the situation resolved. Sometimes that resolution is quick and easy, other times not. The one thing that is sure is that the situation is more of a problem when dealt with reactively than proactively.
Companies that routinely keep the sort of “corporate records” on the posted lists create within a relatively short period of time a significant “minute book”. These records can be vital in maintaining the limitation of liability desired from a corporation or LLC, and in refuting attempts to claim that the legal distinction between the entity and the operator should be ignored.
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© 2004 Patrick Nesbitt, Attorney. All rights reserved.
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