Required Corporate Formalities
Many entrepreneurs switch their business structure to a corporation to benefit from personal liability protection—often referred to as the "corporate umbrella." But contrary to popular belief, incorporating your business is just the first step. Simply filing the paperwork won't guarantee this protection if you don't follow through with additional responsibilities.
The State of Illinois and corporate formalities
The State of Illinois and the Illinois Supreme Court have made it clear: to maintain that umbrella of protection, you must adhere to certain corporate formalities. Neglecting these formalities could strip away the personal immunity you sought when forming the corporation.
Business meetings and formalities
So, what exactly are these formalities? Let's break them down:
Paying the Annual Franchise Fee: Illinois requires corporations to pay an annual fee to keep their status active and in good standing.
Maintaining a Corporate Bank Account: Keep your business finances separate from your personal ones. This includes using a designated corporate bank account for all business transactions.
Signing Documents in a Corporate Capacity: Ensure that all official business documents are signed properly. This often means including your title (e.g., President, Director) next to your signature to distinguish personal from corporate action.
Keeping a Corporate Book: This is a legal requirement. Your corporate book should contain essential records like your incorporation papers, stock ledger, stock certificates, and meeting minutes for both the shareholders and the board of directors.
Failing to follow these formalities can result in losing your limited liability protection, making you personally liable for the corporation’s debts and obligations—defeating the entire purpose of incorporating.
If you're unsure whether you're meeting these legal requirements, it's crucial to address them before it's too late. Staying compliant comes with a cost, but it's far less expensive than the risk of personal liability.
At our office, we can review your corporate compliance to ensure you're on the right track. Schedule an appointment at our St. Charles office by calling (630) 381-8017 and ask for Burton A. Brown.
Protect yourself and your assets.