It’s not uncommon in our office to sit down with a new business client, ask to see the corporate records, and have a thick, dusty, leather-bound binder from the 1970s dropped onto the desk with a thud.
We get it; business owners are busy people. Especially in a closely held company, owners are knee deep in the day-to-day work, and often find it difficult to step back each year and make sure they are compliant with Minnesota law for their particular entity structure. Minnesota corporations have formalities that must be followed to maintain the benefits of a corporate structure. Minnesota LLCs have fewer required statutory formalities, but it is still best practice to make sure you do an annual check-in on important matters. The following is a non-exhaustive list of things Minnesota companies should be making sure they are staying on top of each year.
1. Annual Meetings. Most corporation’s bylaws require annual meetings. Otherwise, Shareholders can demand a meeting if one has not been held in the last 15 months. LLCs aren’t statutorily required to hold annual meetings, but it’s still best practice to do so. Annual meetings are a great time to handle all of the matters discussed in this article. Annual meetings are a great way to make sure all owners are on the same page and are informed of the company’s actions. Keeping a shareholder in the dark, failing to abide by the bylaws you’ve set out for yourself, and generally keeping poor records, is simply asking for litigation (with potential personal liability.)
Make minutes of the meeting and discuss all of the major events surrounding the business that have occurred since the last meeting, including:
- Stock/Membership transfers
- Change in location, signing of a new lease, etc.
- Major purchases/sales of equipment
- New employees, departure of employees
- New officers, departure of officers
- Change in company’s directors
- Change of bank, accountant, attorney
- Change in company benefits (profit sharing, 401k, health insurance etc.)
- Other major events, transactions, decisions (err on the side of including)
2. Annual Renewal. LLCs, corporations, partnerships, and even assumed names require that an annual renewal be filed with the Minnesota Secretary of State. Failure to file can result in the loss of the exclusivity of your business’ name, administrative dissolution, and, if left long enough, the loss of the personal liability protection a business entity can provide.
3. License Renewals. Many businesses, no matter their structure, have licenses from local, state, or federal authorities. Many of these licenses require annual renewals. Failing to do so could put your business at risk for fines or even the loss of the right to conduct business.
4. Business Valuation. Many companies have detailed buy/sell language that lays out the procedures for the buyout of an owner in the event of that owner’s death, disability, divorce, bankruptcy, etc. These buy/sell provisions sometimes require that owners regularly assign a value to the business for the purpose of determining a buyout amount. Staying on top of this valuation is important to ensure a business runs smoothly in the event of the loss of an owner. Failure to do so could result in an owner’s heirs, ex-spouse, or creditors demanding a buyout on terms that could cripple the company.
5. Contract Review. What contracts are due to expire soon? Leases, vendor agreements, joint ventures. Most contracts a business will enter into have set terms, and staying on top of their expiration/renewal dates is important.
6. Employment Procedures. Are you following your employee handbook? Does the handbook need to be changed to address changes in how you manage employees? Does the company have non-compete/non-solicitation agreements set to expire soon?
7. Intellectual Property. Have you registered all marks, names, logos, etc. you’ve rolled out in the past year?
8. Estate/Succession Planning. Have any of the owners set up a trust for their estate plan? Is their ownership interest properly transferred into the trust? Failure to plan for this can nullify the benefits of a trust. If an owner dies with the owner’s shares remaining in the owner’s name, and not in the name of the owner’s trust, those shares are a probate asset.
9. Taxes. Hopefully this doesn’t serve as your reminder to pay your taxes every year.
The above are just some of the issues a business faces. But, a company that checks in every year to go over its yearly obligations will be better positioned to take advantage of next year’s opportunities. If your corporate records were last updated with a typewriter, give Sanford, Pierson, Thone & Strean a call.