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CASE STUDY.

Hackl v. Commissioner of Internal Revenue

Mr. & Mrs. Hackle decided to start a tree farming business, so they created an LLC. Over the years they gifted portions of their business to their children and other family members, trusts, etc. The Hackls claim that their gifts valued less than the annual exclusion and thus were not reportable to the IRS. The judge ruled that because of issues of control, the gifts were actually future interests and did not qualify for the annual gift exclusion. The IRS and courts levied heavy tax penalties that ended up costing them hundreds of thousands of dollars.

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Governance

The Need to Stay In Compliance

Studies show that up to 85% of independently owned business owners are not aware of the compliance requirements mandated by the state in which they do business.  If you are in this vast majority, this means that if you have a lawsuit or lien filed against your business, then your personal assets -- your home, your cars, your boat -- could be seized to satisfy an outstanding judgment.  The best protection against this happening to you is to be sure that you are in compliance with your state’s regulations on maintaining a “corporate veil” -- the legal separation that creates limited personal liability protection for business owners.

To maintain a corporate veil you must observe certain corporate formalities, no matter the size of your company. These include the keeping of records on:

• Corporate bylaws -- the company must adopt a set of bylaws outlining how the business is to be operated and setting the dates and times for regular shareholders meetings and Board of Directors meetings.  Bylaws also outline the actions and responsibilities of the corporation’s officers, Board of Directors, and shareholders.
• Corporate bank accounts -- bank accounts must be set up in the name of the corporation and kept separately than those of the individual owner.
• Stock ledger -- the company must maintain a stock ledger that details the issuance of stock certificates and the amount of stock owned by each shareholder.
• Corporate meeting minutes -- regular meetings must be held and a written record of those meetings must be kept.
• Business conducted in the corporate name --all transactions and agreements must be done in the name of the corporate entity, not the individual owner, shareholders or officers.
  
  

Failure to maintain compliance can result in what is called “piercing the corporate veil”, which is a legal finding by the court that in fact a business does not exist separate from its owner -- in other words, the business has been operating as an “alter ego” instead of as a separate and distinct business entity.

Fortunately, it has never been easier to ensure compliance.  Corporate Correct will:

• Monitor and remind you of important statutory filings and meeting dates;
• Create, deliver, record and store your entity meeting records (such as calls, notices, waivers, minutes, and resolutions);
• Help discover the important business transactions that you need to formally approve and document; 
• Issue ownership certificates and manage ownership records for shareholders, stock option holders, members, managers, and partners; 
• Create necessary time sensitive reports, ledgers and other compliance management reports; 
• Manage Stock Option Plans (option grants, vesting schedules, and option exercises); 
• Monitor your investment notes for monies borrowed or loaned;
• Provide you with an electronic Corporate Record Book that can be accessed online from any computer, anytime, anywhere through a secure password protected portal; 
• Allow you to store and retrieve additional business and personal documents anywhere in the world through your ClientArchive™ e-vault. (Articles, Bylaws, contracts, employment agreements, photos, journal entries, etc.);
• Validate statutory filings and current status for conducting business. 

Giving you the proper coverage that will protect your personal assets against any business claims.

To talk with us about making sure you have all the compliance bases covered, Sign Up. Contact Us.