Have You Overlooked this State Requirement for Your Business?
Article by David Hill
All corporations formed in the state must hold an annual meeting to comply with Michigan law (see MCL 450.2402). The annual meeting typically occurs on a set day each year and serves the important legal function of validating that the corporation has followed one of its key corporate formalities. Failing to follow the corporate formalities could result in a claim to pierce the corporate veil which otherwise protects its shareholders from liability.
Beyond the legally required meetings for corporations, an annual meeting also serves a practical purpose for all businesses, including those formed as partnerships and limited liability companies. All entities benefit from exercising the same formalities in their business as corporations. Not only does the annual meeting protect against creditor claims against the owners, but it also ensures that the business conducts a regular check-up with its advisors and management. For this reason, we recommend that you include your accountant, financial advisor and legal counsel in the meeting. Conducting an annual meeting will mitigate changing business risks and address common issues that arise in operations and among owners before they escalate.
The annual meeting should include a review of the following issues:
- Election of officers and directors
- Affirmation of corporate acts during the prior year
- Review of business conducted outside of Michigan and authorizations / registrations necessary to conduct that business
- Overview of the prior year’s performance and financial statements
- Current and ongoing employee matters, including key employee issues (non-competes, confidentiality and intellectual property protection)
- Health care matters, including Affordable Care Act (ACA) compliance
- Insurance review to determine adequate coverage and updates
- Customer / Client issues, including a review of standard terms and conditions
- Intellectual property registrations required or anticipated
- IT security
- Owner-related matters arising from buy-sell arrangements such valuation determinations (if required)
- Succession planning
- Discuss any other material business of the company
Not only should you conduct an annual meeting to address the above items, but you must also exercise vigilance to hold meetings whenever required for decisions that necessitate a vote of the members or shareholders under the organization’s governing documents. For example, this may include a vote to ratify the sale of real estate, to grant authority to a manager for a particular action otherwise outside that manager’s scope, or enter into transaction outside the ordinary course of business.
Documenting decisions at the annual meeting and periodic, as needed, additional meetings will reduce the risk of misunderstandings or disputes well after the company makes decisions and will ensure a more efficient operation of your company.
Posted on December 09, 2016
Tagged as Business Law