ARTICLES

Annual Entity Update Service for Minnesota Corporations and LLCs: Preserving Corporate Formalities

THE SERVICE
Skjold ▪ Barthel offers an Annual Update Service to assist businesses in making the necessary filings with the Minnesota Secretary of State in order to remain in good standing, preserve liability shields, avoid corporate veil-piercing claims and to memorialize business activity.

The Service includes the preparation of annual meeting minutes for the owners and management of the business, including the election of appropriate persons to designated positions within the business’ legal structure.

THE PROCESS
In order to prepare the minutes, an in-depth questionnaire is delivered to clients in January to provide key information on the activities of the business over the previous year.  Together with the questionnaire, the business is provided with a profile summary of the business for review.  The profile summary serves as a handy tool to chart out a business’s most important legal and financial information. 

The Skjold ▪ Barthel Annual Update Service is provided for an affordable flat fee.   For businesses under common ownership and control, we will discuss alternate rates so as to encourage participation in the process without becoming cost prohibitive.

PRESERVING LIABILITY SHIELDS, VEIL-PIERCING AND SALE CONSIDERATIONS
In order to preserve the liability shield that a legal entity can provide, it is important to observe certain “corporate formalities.”  Corporate formalities take many forms, including the maintenance of separate banking and checking accounts and entering into contracts in the business’s legal name. 

Another important factor in determining whether corporate formalities have been followed is maintaining the appropriate legal documents that demonstrate actions taken by individuals on behalf of a business.  Many businesses neglect to keep appropriate records only to find out that the owners may be held personally liable for the business’s obligations when litigation is commenced.

Participation in the Skjold ▪ Barthel Annual Update Service can help provide a defense to such veil-piercing claims.  For businesses that are contemplating a buy-out or merger, properly maintained corporate records can help prevent last minute purchase price discounts because of potential liability exposure or record-keeping inadequacies.

BUSINESS DEVELOPMENT
Reduction of Internal Corporate Disputes
Forgot to put that ownership agreement or resolution into writing?  It could cost you or your business unnecessary legal fees or even the survival of the business itself.  We have seen a business and its ownership spend in excess of $500,000.00 fighting over the ownership of 1% of its ownership interest.  Had the business created annual minutes discussing the resolutions it made regarding ownership, the conflict that erupted years later could have been avoided.

Recording Value of Ownership Interests
Many businesses have buy-sell agreements that have valuation provisions keyed to annual determinations of value for ownership interests.  Often, the opportunity to memorialize one’s understanding on value is lost due to lack of reminders.  This can result in a wildly unfair valuation conclusions according to the documents controlling the situation – inviting litigation and its corresponding costs.  Proactive owners with such agreements will find the program useful to assist the business in addressing valuation concerns.

In addition to its legal significance, many companies have found their involvement in the process to be a valuable and excellent exercise in reviewing the progress of their business and areas for needed improvement.  Thus, use of the Service not only promotes proper corporate operation, but also can add value to the bottom line.