Maintaining Corporate Formalities In California

By May 7, 2014Blog

Just formed a corporation in California under which you will do business? Congratulations! However, this alone does not shield you from legal liabilities associated with your corporation.

As you no doubt understand, corporations are legal entities the main purpose of which is to shield an individual (or individuals) who is operating the corporation from legal liabilities. However, in order to make sure that shareholders of the corporation are not responsible for the liabilities of your corporation, you must maintain the proper corporate formalities, as required under California corporate laws.

Some of these formalities include:

  • The Articles of Incorporation need to be prepared and filed with the California Secretary of State.
  • The corporation should enact corporate bylaws, laying out such things as the date of the annual shareholders meetings, the number of board directors, and other corporate resolutions.
  • Board meetings must be held at least once a year.
    • At such meetings, the board should adopt corporate resolutions and prepare proper meeting minutes.
  • Shareholders’ meetings should also be held at least once a year.
  • The corporation should have separate bank accounts and the funds in the bank accounts should not be commingled with any personal bank accounts.
  • Corporate credit cards should only be used for business-related purchases, not personal purchases.
  • The corporation should maintain corporate financial records that are separate from the shareholders’ personal finances.
  • The corporation must be adequately capitalized.

These are just some of the corporate formalities that must be maintained. Compliance is not always easy and requires the use of an attorney specializing in corporate law. Failure to meet corporate formalities can lead to what is known as the piercing of the corporate veil. This is when shareholders become liable in their individual capacity for corporate liabilities. In order to avoid such a scenario, schedule a free consultation with us today. A Beverly Hills Law Corp., PC, business lawyer is always ready to help you.