Shareholder Meetings and Board Meetings: A Necessary Corporate Ritual?

When you incorporated your business, you may have heard you need to hold regular shareholder or board meetings. You might think of board meetings as events just for big, publicly traded companies with C-suite executives and shareholders. But board meetings are part of the legal requirements for all corporations—big or small, public or private.

In this article, we’ll discuss why they’re so important and share some tips for making them a little more manageable.

The purpose of corporate meetings

Think of corporate meetings as the annual family reunion of a company, where the family members (shareholders or board members) make decisions. 

Some activities that normally take place during a corporate meeting include:

  • Sharing important company information
  • Voting on key issues, such as electing board members, approving mergers, or making significant changes in the corporate bylaws
  • Providing updates on the status of major projects or company-wide initiatives
  • Brainstorming solutions to organizational challenges
  • Discussing feedback from employee or customer surveys

Perhaps most importantly, these meetings are a corporate formality that helps provide a layer of protection for your personal finances.

Which entities require annual meetings?

All corporations, regardless of their size or revenue, must hold annual meetings. This includes corporations that have elected S corporation status.

However, the requirement does not extend to limited liability companies (LLCs)—even those that have elected to be taxed as S corporations or C corporations (unless the entity’s operating agreement requires them). This election is purely for tax purposes and doesn’t change the fundamental nature of the entity or its corporate governance.

How corporate meetings limit personal liability

We’re not attorneys, so be sure to discuss this with yours, but one reason to structure your business as a corporation is to limit your personal liability. 

According to Nolo:

“One of the main advantages of incorporating is that the owner’s personal assets are protected from creditors of the corporation. For instance, if a court judgment is entered against your corporation saying it owes a creditor $100,000, you can’t be forced to use personal assets, such as your house, to pay the debt. Because only corporate assets need to be used to pay business debts, you stand to lose only the money that you’ve invested in the corporation.”

Of course, there are some exceptions. For example, the creditor can try to persuade the court to “pierce the corporate veil,” making you personally liable for the corporation’s debts.

Piercing the corporate veil essentially means removing the legal separation between the shareholders and the corporation itself.

Practicing corporate formalities, such as keeping business and personal finances separate, maintaining accurate financial records, and, yes, holding annual corporate meetings, maintains the distinction between the corporation’s business dealings and the shareholder’s personal finances. 

So, holding regular shareholder meetings isn’t just a formality; it’s a cornerstone of good corporate governance. 

Corporate meetings for sole shareholders

Running a shareholder meeting as a sole shareholder (or even a very small corporation) might feel like talking to yourself in the mirror. However, it’s still essential for legal and record-keeping purposes. 

Don’t worry—you don’t have to reserve a meeting room and hire a caterer. Here’s how to keep it simple:

Set up a recurring annual meeting

To meet federal and state minimum guidelines, you need to hold a corporate meeting at least once per year. Decide on a date and put it on your calendar as a recurring meeting. For example, you might decide your corporate meeting will take place on the second Monday of the year. Block out an hour on your calendar so you don’t forget.

Create an agenda

Decide what your corporate meeting will entail. For example, you might:

  • Confirm you want to retain the services of your tax accountant for another year
  • Seek a business line of credit to cover temporary cash flow shortages
  • Increase your salary or distributions
  • Find a new business bank
  • Lease new office space
  • Research a new product or service.
  • Review your articles of incorporation or bylaws and make any necessary updates
  • Review your prior year’s financial statements and key performance indicators

If you’re the sole shareholder, you don’t have to share this agenda with yourself ahead of time, but if you have another shareholder in your company, be sure to share the notice of the meeting and the agenda with them.

Document your decisions

Even if you’re the only one you need to consult on these issues, document your decisions in writing. This documentation is known as “meeting minutes.” 

At a minimum, your minutes should include:

  • The name of your corporation
  • The date, time, and location of the meeting (even if it’s your home office or local coffee shop)
  • Individuals present (even if that’s just you)
  • Important changes in your business
  • Any decisions made during the meeting

Sign your meeting minutes and keep them in a safe place. If the IRS questions your compensation in an audit or a plaintiff’s attorney tries to convince a judge your corporation is a sham to get your personal assets, these meeting minutes will come in handy.

Tax advantages of board meetings

If you have other board members, certain expenses related to regular board meetings can be tax deductible. For example, you may be able to write off the cost of:

  • Travel expenses. The cost of traveling to and from board meetings can be tax-deductible. This includes airfare, mileage (for those who prefer the scenic route), and even taxi fare from the airport to the meeting venue. 
  • Meal costs. Meals during board meetings can also be deductible. However, remember it’s not a free-for-all; the expenses should be reasonable. Think more along the lines of a catered buffet and less like a five-course dining experience at French Laundry.
  • Accommodations. If the meeting calls for an overnight stay, the cost of accommodation is also deductible. 

While being able to write off these expenses can make paying for a corporate meeting a little less painful, it’s crucial to follow the rules. First, the expenses must be both reasonable and necessary. In other words, a luxury spa visit post-meeting might not pass muster during an IRS audit. Also, be sure to keep detailed records of these expenses. 

These tax advantages aren’t just about saving a few bucks. They encourage active and regular participation in board meetings by reducing the financial burden on the members. This, in turn, fosters better governance and decision-making. 

Get trustworthy advice from an experienced tax advisor

If you’ve gone through the trouble and expense of structuring your business as a corporation, follow the corporate formalities so your business structure serves its intended purpose.

While holding shareholder and board meetings in small, closely held corporations might seem like a waste of time and money, they are, in fact, crucial for ensuring legal compliance, facilitating decision-making, and fostering transparency and accountability. 

If you need help deciding whether the corporate structure is right for your business or figuring out which board meeting expenses you can deduct, please reach out. Having a trusted tax strategist along on your corporate journey is never a bad idea.

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