If your company is a corporation, you’re probably aware that your shareholders and Board of Directors must meet at least annually. For many entrepreneurs, the board and shareholders may only consist of a couple of people and this meeting requirement is regarded as an annoying formality. The main purpose of the meeting is to ensure that the corporation is respected as a separate legal entity to support your company’s tax position. Here are some of the other events that should take place at your annual meeting:
- Elect officers and directors
- The directors approve the accrual of bonuses and retirement plan contributions at this meeting
- Document officer compensation, reasons for paying (or not paying) dividends
- Ratify key actions taken by corporate officers during the year
- Specifically approve any loans to shareholders to lessen the chance for the IRS to reclassify the loans as taxable dividends
- if the corporation is accumulating a significant amount of earnings, the minutes of the meeting should spell out the reasons for the accumulation to help prevent an IRS attempt to assess the accumulated earnings tax.
A well-documented annual meeting is an important part of your corporation’s tax records – more importantly, the meeting minutes can help to avoid costly litigation in the future.
Some additional points to make your annual meeting work harder for you:
- Meeting minutes do not have to be a full transcript of the meeting; you do not need to recount the entire discussion.
- Meeting minutes should reflect who is present, including non-Board members, and the topics discussed at the meeting.
- Meeting minutes should indicate any time a director votes “no,” (unless the “no” is recorded it will be assumed that the director voted “yes.”)
- It’s a best practice is to retain documents presented in the meeting, but they need not be in the record book. The Secretary may keep a folder of documents presented, noting the date of the meeting at which each was presented.
Most corporations find the couple of months prior to their yearend to be the best time to hold their annual meeting. Including your CPA and attorney in your annual meeting provides a perfect opportunity to plan efficiently for the coming year.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with one of our Professionals. Contact www.RHCPAS.com or other tax professionals prior to taking any action based upon this information.