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Corporate Meetings: Are You Creating Shareholder Liability?

posted on January 09, 2014 by Scott A. Breen

 Michigan law generally requires shareholders of a corporation to hold annual meetings.  This requirement applies regardless of the number of shareholders.  In addition to this statutory requirement, a corporation’s bylaws generally require the shareholders and board of directors to hold annual meetings.  If these meetings are not held, a creditor can seek to “pierce the corporate veil” and sue shareholders individually for corporate obligations.

Most people establish corporations for two reasons.  First, it can provide certain tax advantages over other types of business entities.  Second, corporations protect shareholders (and usually directors and officers) from personal liability when a creditor asserts a claim (e.g. lawsuit) against the corporation.

If a corporation is not holding annual meetings as required by law or its governing documents (e.g. bylaws), a creditor may seek to “pierce the corporate veil.”  More specifically, the creditor may allege that the corporation is not operating as an entity “separate and distinct” from the individual actions of its shareholders.  Another example of this type of behavior is when a corporation does not use a separate bank account but deposits income into the individual accounts of its shareholders.  If a creditor is successful in showing that the shareholders are not respecting the requirements of a corporate entity, the shareholders will likely be personally responsible for all of the debts of the corporation.

In order to show that a corporation is complying with Michigan law, written minutes of each meeting should be prepared and inserted into the corporate book.  In addition to personal liability of the shareholders, record books with incomplete minutes can result in unnecessary accounting and legal fees.  In the event of an audit, one of the first questions the IRS, State of Michigan, and/or Labor Department will ask is to review the corporate minute book.  Similarly, lost share certificates can be very problematic without minutes to establish the number issued to each shareholder.

In addition to the formal requirements of annual meetings, they also serve a valuable business purpose.  The very act of discussing and writing down the decisions of the corporation forces an examination of key issues that every corporation must address.  Some of these issues include insurance, employment, succession planning, and tax issues.  The minutes of each meeting also serve as a record of your corporate business history and serve as your plan of action for the future.

If you need held facilitating or documenting corporate meetings, you may contact Scott A. Breen at 517-324-1021 or sbreen@willinghamcote.com.

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