Most business owners who operate their business through a corporation believe that there is only one requirement to maintaining its legal status - filing the State of Florida mandated annual report.  While it is true that each corporation must file its annual report to keep its active status, there are other important formalities which should be observed to ensure the many protections and advantages which the corporate form offers, not the least of which, of course, is the protection of shareholders against personal liability for obligations incurred by the Corporation.  Courts allow creditors of corporations to "pierce the corporate veil" and bring personal suits against shareholders if the corporation is a "sham".  A sham corporation is one that does not follow corporate formalities.

One way of maintaining corporate formalities is keeping a corporate record book.  Florida law requires all corporations to maintain and update certain corporate records. Examples of documents that should be maintained in the record book include the articles of incorporation, bylaws, and shareholder and board meeting minutes.   Others include annual reports, stock certificates, corporate resolutions for certain actions such as borrowing, purchase or sale of property, changes in directors or officers, and amendments to the governing documents.

In addition to the legal concerns noted above, there are operational reasons to maintain up-to-date records. First, many banks and other lending institutions will want to review the record book before lending money to a business to verify who is authorized to act on behalf of the corporation.  Second, updated corporate record books assist professionals serving the company such as lawyers, accountants and financial advisers in the preparation of legal documents, tax returns and financial plans.  Finally, updated recordkeeping will assist in the eventual sale of the business or all of its assets.

A good rule of thumb is to review your corporate records at least annually.  Many of our clients do so prior to filing their annual report.