My mother always tells me that I should visit the dentist every six months, but what do I do? I forget my appointments, avoid the reminder calls, and end up in the reclined dentist chair maybe twice a decade. And once in the chair it is all down hill. The doctor points out cavities and receding gums left and right, and repeatedly tells me that these problems could have been avoided with preventative measures and regular office visits.

Don’t let my bad dental health mirror the legal health of your corporation. Often times officers of a corporation will avoid legal help at all costs, until it is too late. Then they miss filing dates, acquire late fees and penalties, and have a corporation that appears as unorganized and decaying as a row of rotting teeth.

So how can you avoid this scenario? You can steer clear of an unorganized and penalized corporation by getting regular legal check-ups. Basically this means having your records examined by an experienced corporate lawyer. But if this still is as agonizing to you as getting your teeth pulled you can simply follow the steps below in order to perform a do-it-yourself check up on the health of your corporation.

1. Organize

Gather and organize your corporation’s articles of incorporation, bylaws, actions of incorporator, meeting minutes, statement by domestic stock corporation, record of shareholders and securities filings. Do you have all of these documents? If the answer is “no,” then the do-it-yourself check up is probably not right for your corporation. If the answer is “yes,” then good for you, and continue on. These documents should be kept organized year-round since the shareholders have a right to look at these documents at any time. Think of it like flossing—it’s a pain to do everyday, but the benefits are great.

2. Go Over Each Section Carefully

Just like brushing your teeth, you should go over each section of your documents carefully and slowly. Rushing through your do-it-yourself check up means missed diagnoses. Start with your articles of incorporation and work your way to securities filings.

Articles of Incorporation:

Every corporation is formed when articles of incorporation are filed by the Secretary of State. Once filed, a certified copy is returned to the corporation. This certified copy should have a front-page standing in your record book, as it is the most important document in your records. Article amendments should also be included here.

Bylaws:

The bylaws of your corporation should be referred to by employees often, so they come next in your record book. Because the bylaws are the laws that govern the conduct of your corporation, employees and shareholders often look here for information on directors, officers, elections and meetings.

The bylaws section of your records is the first place that you might run into an unhealthy legal state. Many corporations overlook the California law that caps the number of corporate directors. This is a complicated law that has many exceptions. For example, if the corporation has one shareholder, it may have one or two directors. But, if the corporation has two shareholders it may have two directors. Examine whether or not your amount of shareholders has increased since incorporation. You may need to consult a lawyer to amend your bylaws.

Statement By Domestic Stock Corporation:

After filing your articles of incorporation, you have 90 days to file a statement by domestic stock corporation. If your corporation was formed after the year 2000, then you should have biennial records of your filings (before 2000 filings should be recorded annually). Keep you records of these filings, plus all amended statements due to information changes. Failure keep up with your filings will result in a $250 fee and suspension of your corporation. This is an office visit you don’t want to forget!

Actions By Incorporator(s):

After the articles of incorporation are filed by an incorporator, he or she generally adopts the bylaws and appoints the directors. This should be documented and placed before the meeting minutes in your record book.

Meeting Minutes:

Okay, ladies and gentlemen, this is where your corporation’s health usually deteriorates. When looking at your minutes records are there large gaps of time like looking into a mouth full of missing teeth? It is easy to not record the minutes of your meetings, or to lose those minutes in the hustle and bustle of a busy office. It is also easy to forget your dentist appointment. Neither one is okay.

The meeting minutes should appear as an unbroken history. All business activities should be documented. The history should begin with important actions taken by directors regarding incorporation. The beginning of your history should include:

1. Electing officers
2. Adopting Bylaws
3. Appointing a permanent agent for service of process
4. Approving the form of share certificates
5. Establishing the office location
6. Statement of intent to qualify stock for treatment under the IRS code section 1244
7. Adopting employment agreements
8. Establishing a banking relationship

The rest of your history should include every meeting, as outlined in the bylaws. Extra care should be taken to properly document all important decisions like insider transactions and all meeting votes.

Record of Shareholders:

This is another section that can get legally interesting. All shareholders are entitled to a share certificate and the corporation must keep records of the certificates issued. Where this becomes a headache that could vie with any toothache, is that it is California law to keep up-to-date records of these certificates.

Each record should include the shareholder’s name, address, and the number and class of shares held. The most important thing to remember is that the number of shareholders must never exceed the amount authorized in the articles. If you notice this serious violation, then it is time for you to contact an attorney experienced in corporate matters.

Securities Filings:

The last thing that needs to be in your records to keep up with your legal health is your securities filings. A notice of transaction must be filed with the California Department of Corporations for each issue of shares. Therefore there should be a section in your records that covers share issuance and transfers as they are regulated by state and federal law. If your corporation has qualified for an exemption, the exemption notices go here. Don’t forget, that even for exemptions, you must file every time a share is issued.

***After the securities filings you should have all other documents that pertain to the actions of your corporation, such as seller’s permits, D.B.A.s, employer identification numbers, etc.

So now you are at the end of your do-it-yourself check up. How did you do? Is your corporation in need of a major root canal, or is it shining like the glow of freshly cleaned teeth? If you are anything short of a bright white smile, we are here to help.

Marc R. Tow, Esq is founder of Marc R. Tow & Associates, a boutique law firm providing advice, counsel and representation in the legal areas of business, real estate finance, securities and mortgage and personal planning. The firm performs transactions and litigation services for investors, entrepreneurs, financial professionals, business owners, families and individuals in our areas of expertise. The firm was formed in 1978 and is located at 3920 Birch Street Newport Beach, CA 92660. You can also find Marc on the web at http://www.towlaw.com

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