Business Law

Saving Expensive Legal “Check-Ups”

Are you tired of being told to get check-ups?  If you’re a corporation you need an annual check-up with your attorney for those annual meeting minutes. Remember an empty minute book may terminate your limited liability (i.e. you become personally liable for your corporation’s debts and liabilities).  You really should have an updated  will or a revocable trust, but that means another “check-up.”  Let me take a little pressure off of you with some suggestions.

Stock Certificates 101 (for LLC’s too) – Do you have stock certificates for your corporation ? They’re required, you know. How about putting “TOD” on your certificate ? That stands for “transfer on death.” Just put in “Bob Smith TOD Jane Smith.” That’s all you have to do. It means that your stock will transfer automatically to your spouse Jane at death. No probate, just straight to your spouse. It’s really that simple. You can also TOD to your revocable trust (but you’ll need an attorney to help you with that one).

What about LLC’s? They don’t have stock right? No, but LLC’s can denominate ownership in “Units” (similar to shares of stock). Do NOT copy a stock certificate and create a Unit certificate. This may endanger your creditor protection (more on that later). Even if you don’t define units in your LLC operating agreement you can still TOD your LLC ownership interest. Unlike a corporation, the LLC as an entity must acknowledge and approve the TOD of your ownership interest. Ask your attorney for a Beneficiary Designation/Transfer on Death instrument, which should include a provision for the LLC entity to approve at the bottom of the page.

“Close” Corporation – If you’re incorporated and it’s just you (or you and your spouse) find out if you are a “statutory close corporation.” How will I know, you ask? That’s easy. Look at your Articles of Incorporation (on-line at www.sos.mo.gov/BusinessEntity/soskb/csearch.asp). If your Articles don’t say  “this is a statutory close corporation” then you aren’t. Why does this matter? Here are a couple reasons:

1.  A close corporation doesn’t have to hold annual shareholders or directors meetings. No meetings, no minutes. No minutes, no worries about that empty minute book. No kidding.

2.  No board of directors is necessary. If it’s just you, or you and your spouse, why do you need a board of directors anyway? Someone in the legislature actually thought of that when it passed this law (just for you).

Converting to a close corporation can be done at anytime, and doesn’t effect your tax status. A good business attorney can do it quickly and inexpensively. If your attorney says …. “a statutory what? ” … go immediately to the parking lot and call someone for another referral. By the way, don’t try to do this yourself (or with your fill-in-the-blank accountant). You’ll make it worse.

Even better, consider converting to an LLC. LLC’s do not require annual meetings (or minutes), and provide more creditor protection than a corporation. See  http://theblogforbusinesslaw.com/doing-business-as-a-corporation-youre-living-in-the-past/

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