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Are Written Actions Required for a Single-Owner LLC or Corporation?
When it comes to the governance and decision-making processes of business entities like Limited Liability Companies (LLCs) and corporations, the question often arises: are written actions required, particularly in the context of single-owner structures? The answer is nuanced, as legal requirements and best practices can vary depending on jurisdiction, business structure, and individual circumstances. In this article, we’ll delve into the importance of written actions for single-owner LLCs and corporations, considering both legal obligations and practical considerations.
Understanding Written Actions
Written actions, also known as written consents or written resolutions, refer to formal documents that record decisions made by a company’s owners or directors. These written actions serve as a substitute for holding a physical meeting, providing a means for decision-making without the need for everyone to convene in person.
A single-owner LLC, often referred to as a sole proprietorship or single-member LLC, is a business structure where a single individual owns and manages the company. In most jurisdictions, including the United States, single-member LLCs are not required to hold formal meetings or prepare written actions for decision-making. This is because the owner has full authority over the company’s operations and decision-making.
However, even though written actions might not be legally mandated, keeping written records of significant decisions can offer several benefits. These include maintaining clear communication and documentation of business decisions, helping in demonstrating compliance with legal requirements, and separating personal and business matters—crucial for preserving the limited liability protection that LLCs offer. While not a strict legal obligation, maintaining written records can greatly aid in the smooth operation and growth of a single-owner LLC.
Corporations, whether single-owner or multi-owner, generally have more rigid formalities due to their distinct legal nature. Single-owner corporations, often referred to as closely-held or closely-held corporations, are usually required to hold annual meetings of shareholders and directors. The minutes of these meetings, which record decisions and actions taken, must be maintained as part of the corporate records.
In the case of single-owner corporations, while the legal obligation to hold meetings might still exist, practicality often dictates that written actions are utilized. This is especially true when the single owner holds multiple roles, such as being the sole shareholder, director, and officer. Written actions in this context serve as a means to streamline decision-making while adhering to formal requirements.
Benefits of Written Actions
Whether mandated by law or employed for practical reasons, written actions provide several advantages for both single-owner LLCs and corporations:
- Documentation: Written actions create a clear and concise record of decisions and actions taken by the company, helping to establish transparency and accountability.
- Legal Compliance: Maintaining written records can help demonstrate compliance with legal requirements, potentially safeguarding the company’s limited liability status and protecting the owner(s) from personal liability.
- Communication: Written actions ensure that important decisions are properly communicated, reducing the risk of misunderstandings and disputes.
- Efficiency: Particularly in single-owner corporations, written actions can expedite decision-making processes, avoiding the need for physical meetings.
- Planning for Growth: Having a documented history of decisions can aid in strategic planning and growth efforts, as well as facilitate any future transitions in ownership or structure.
While written actions might not always be legally required for single-owner LLCs, their benefits in terms of documentation, compliance, and efficient decision-making cannot be understated. For single-owner corporations, the need for maintaining written records is often more pronounced due to formal corporate governance requirements. Regardless of legal obligations, both business structures can benefit from adopting written actions as a best practice for effective management and growth. Consulting with legal professionals and experts in business governance can help ensure that your business operates in accordance with relevant laws and best practices.
Are Written Actions and Meeting Minutes Required for Single-owner LLCs and Corporations?
This is an interesting and strongly debated issue among attorneys because the general rule is that you must follow the corporate formalities, which means having meeting minutes and making decisions. And if you don’t follow those, creditors can pierce the corporate veil. In other words, you can have personal liability for the corporation’s or the LLC’s debts. So, most lawyers will tell you that you must have meeting minutes at least every so often for a corporation or an LLC. Some people will say quarterly, some people will say annually, but let’s think about it.
Questioning the Need for Meeting Minutes for Single Owners
How do you have a meeting with yourself? If you are the sole owner of a corporation and you have a shareholders’ meeting, what is that? Isn’t that just kind of a ridiculous formality to create meeting minutes for that? Well, the law has said that it is not a ridiculous formality. A lot of things are merely formalities, but it is those formalities that demonstrate a business owner is following the law and keeping the corporation’s affairs separate from the business owner’s affairs.
So then you might ask, if I don’t have annual meeting minutes, does that mean some accreditor can pierce the corporate veil or I would have personal liability? Well, I will tell you that after practicing law for nearly 20 years, I have never come across a case—I have looked for it, but I have never come across a case—where merely not following formalities resulted in piercing the corporate veil. And specifically, I have never seen a case where just because a company didn’t have meeting minutes, the shareholders had personal liability.
Factors in Piercing the Corporate Veil
What I have seen is where that was one of many factors considered by a court in determining that the creditor could pierce the corporate veil. This means the shareholders were personally liable for the debts of the company. But, as we will talk about in a moment with piercing the corporate veil, there are a lot of other factors, and those factors are much more important than having meeting minutes, especially for a single owner LLC or corporation. That said, it is pretty easy to put together meeting minutes.
All you have to do is get a free template. I have one online (we will put a link in the description below that you can find later) and it provides a template of meeting minutes that you can use. Just put those together. I get that it is kind of dumb; you are meeting with yourself, but it is a very small investment of time to be able to check that box and say, “Hey, I followed the corporate formalities here.”
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