Q: I am the sole stockholder of
my travel agency, which is a corporation. Over the years, I have
been told that it is legally necessary for the corporation to hold
an annual meeting to elect directors and officers, keep minutes of
meetings and do other such silly stuff. Do such requirements really
exist for a one-person corporation like mine? If so, how can I hold
a meeting with myself? What else do I need to do in order to keep
my corporation valid?
A:
Meetings, minutes, elections, and bylaws are known as corporate
formalities. Every lawyer will tell you that you need to observe
the corporate formalities in order to keep your corporation valid,
although you can certainly take some shortcuts.
Without the
formalities, you run the risk that creditors will be able to hold
you personally liable for the debts of the corporation. For
example, an airline may try to hold you liable for your agencys
debit memos, and ARC will certainly argue that you are personally
liable for whatever your agency owes ARC.
Taxing authorities
may also claim that you are liable for corporate debts such as
withholding taxes and unemployment insurance, even after your
travel agency closes down.
Under the
corporation laws of most states, every corporation needs to adopt
bylaws, which sounds like a silly requirement if there is just one
owner. However, you can adopt standard bylaws like the ones found
at www.pestronk.com/bylaws.html.
Although most state
laws also require you to hold an annual stockholders meeting, you
can dispense with a meeting by simply signing each year a one-page
paper, like the one at www.pestronk.com/consent.html, stating that you
consent to action in lieu of a meeting.
The one-page form
also covers the rest of the formalities: election of a board of
directors (even when you are the sole director) and appointment of
corporate officers (even if you are the sole officer and thus serve
as president, treasurer and secretary).
Even if many years
have gone by since you set up your corporation, you can still
observe the formalities going forward and thereby lessen the risk
that your corporation would be disregarded by creditors or courts.
You can even back-date the consent forms, as long as you dont
misrepresent them as having been signed on the actual dates that
appear on the forms.
Here are four other
keys to keeping your corporation valid:
" Use your full,
corporate, legal name on all documents, including letterheads,
business cards and contracts. Make sure that you use the exact
name, commas and all. If you use your corporate name but omit the
inc. or equivalent on contracts, the law presumes that you intended
to sign personally.
" Include your own
corporate title when signing all contracts, letters and e-mails.
Sign as president, not as owner. The latter is not a corporate
title.
" Maintain a bank
account for your corporation, and never commingle personal funds
with corporate funds.
" Keep the
corporation in good standing with your home state by filing the
required annual reports. You would be surprised about the number of
travel agencies that are no longer valid corporations because they
neglected to file their annual reports.
Mark Pestronk
is a Washington-based attorney specializing in travel law. He
answers your questions in the TravelWeekly.com Legal Ease forum. To contact Pestronk
directly, e-mail him at [email protected].