03 Nov Corporate Records Every Business Owner Should Maintain
It seems as though the term “corporate records” has a different definition, depending upon who is asking for them. If your CPA asks you for corporate records, they may be referring to your sales receipts, expense reports, invoices, and other financial records. If a title company asks you for corporate records, they may be requesting information on any property you may own.
But when someone asks a business owner for corporate records with respect to their entity (whether it be a Corporation, Limited Liability Company (“LLC”), Limited Partnership (“LP”), or other entity), they are typically referencing very specific documents that every business owner should have. This article spells out just what corporate records are with respect to entities, why you need to have them (and maintain them periodically), and which ones you need to retain.
Corporate Records Defined
Corporate records for entities are those documents that form, govern, and affect the entity. These include those records that are required by law in order to have a valid entity in Texas, permissible documents that are optional for a business owner to maintain, and those documents that are unavoidable when doing business in Texas. Some corporate records can be part of the public record, and others are only internal records that the public are not privy to.
Unfortunately, there really isn’t one, specific definition of what “corporate records” are. Instead, corporate records are defined by the sum of their parts. Below is a list of what corporate records each business owner should maintain, as well as why it is so important to not only compile these records, but also periodically update them.
Why You Should Maintain Corporate Records
There are many reasons to maintain corporate records, the first and foremost is to stay in compliance with Texas law. The Texas Business Organizations Code requires each entity to maintain certain records (which include those records listed below) and provide such records within a specified time to its owners after a proper demand is made. In addition to compliance with Texas law, the IRS may audit your business, and during the course of an audit the IRS agent will require you to deliver the entity’s corporate records within a specified timeframe.
There is also a practical reason for maintaining good corporate records. Other professionals that you engage with will likely need to see the entity’s corporate records at some point (including a CPA and financial advisor). In the event a business owner desires to sell their business, a buyer will request the corporate records of the entity during its due diligence phase and lacking corporate records (or having incomplete records) may send warning signs to the potential buyer. In order to buy or sell property in Texas through an entity, a title company will need to review the corporate records of the buyer and seller. Making corporate records available to third parties will occur at some point for every business, and maintaining good corporate records will only make these transactions run more smoothly.
Which Corporate Records You Should Maintain
While every business is different, every entity should have certain corporate records that are both easily accessible and periodically updated. Below is a list of those corporate records that every business owner should have and maintain:
- Certificate of Formation (also known as Articles of Incorporation) and any amendments or restatements
- LLC Agreement or Operating Agreement (for LLCs), Bylaws (for Corporations), or Limited Partnership Agreements (for LPs) and any amendments or restatements
- Corporate Resolutions and Minutes of Meetings
- Membership Certificates (for LLCs) or Stock Certificates (for Corporations)
- Membership Ledger (for LLCs) or Stock Ledger (for Corporations)
- Filed Trade Names (also known as Assumed Names or DBA’s)
- Names and addresses of all Officers and Directors (for Corporations), Managers (for LLCs), or General Partner (for Limited Partnerships)
- Names and addresses of all owners (whether the owners are shareholders in a Corporation, members of a LLC, or limited partners in a LP), their ownership interest, the date each owner became an owner of the entity, the amount of each owner’s capital contributions and the date they were contributed to the entity
- Buy-Sell Agreement (also known as Shareholders’ Agreement)
- Transaction Documents evidencing:
- Any sale of ownership, issuance of ownership, redemption of ownership, or any other change in ownership in the entity
- Any corporate reorganization, conversion, or sale of substantially all the assets
- Appointments or resignations of Managers / Directors, Officers, and Registered Agents
- Executed Powers of Attorney
- Employer Identification Number
- IRS Form 8832 and 2553 (for LLCs taxed as S Corporations) or IRS Form 2553 (for Corporations taxed as S Corporations)
- Franchise Tax Returns and Public Information Reports
- Tax Returns (for at least the last 6 years)
While many business owners may view maintaining and updating corporate records as tedious (especially given the focus required to run a successful business), maintaining these records is a must and needs to be a high priority for all business owners, regardless of the type of entity, size, and amount of time the entity has been doing business. But the administrative burden does not have to be borne on the business owner; surrounding yourself with experienced professionals can alleviate this burden and will ensure continued corporate compliance.
ABOUT THE AUTHOR: Drew Erickson is an Associate at Rapp & Krock, PC.
Rapp & Krock, PC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content of any linked website may have changed since this article was written, and Rapp & Krock, PC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and Rapp & Krock, PC does not represent you unless and until we are expressly retained in writing.
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