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Questions and Answers

Have a question about your LLC or corporation? Thinking about incorporating and have questions?  Email us your question and we will email you a response.

Corporate Correct does not offer legal advice. If you have legal questions, we will happily help you find an attorney. Any legal terms or subject matter that is discussed should always be verified by your attorney, who knows the specific laws governing your circumstances.

What is a "corporate veil" and why is it important?

Black's Law Dictionary defines Corporate Veil as "the legal assumption that the acts of a corporation are not the actions of its shareholders, so that the shareholders are exempt from liability for the corporation's actions." 

"Piercing the corporate veil" is defined as "the judicial act of imposing personal liability on otherwise immune corporate officers, directors and shareholders for the corporation's wrongful acts."

It is important for a business to maintain its corporate veil so that the personal assets of its owners, officers and/or shareholders are protected against any claims against the business.  The most effective way to maintain a corporate veil is to be sure you are in full compliance with all the corporate formalities required by the state in which your company is incorporated.

I'm a sole proprietor.  Do I need the services provided by Corporate Correct?

Corporate Correct provides compliance services to companies operating as S or C Corps or LLCs.  If you have not set up your company as one of these entities, we would encourage you to speak with an attorney about doing so, to protect your personal assets. 

I have multiple LLCs/Corporations.  Do I need to have Corporate Correct provide compliance documentation for each one?

Yes.  Each LLC or Corporation is a separate legal entity and, as such, each needs separate compliance documentation.  It is in your best interest to be sure all your companies are protected, as ownership in each is considered personal property.  In the event that even one has its corporate veil pierced, you could lose ownership in all the others.

What is a Corporate Records Book?

A corporate records book contains all the relevant documents that pertain to the business entity.  These items include but are not limited to:

• Articles of incorporation
• Bylaws
• Meeting minutes
• Stock certificate ledger
• Stock certificates
• Stock transfer documents
• Member ownership interest.
• Current list of members and officers with full names and addresses
• Copy of signed operating agreement and all signed amendments, plus signed powers of attorney for if relevant
• Copies of past operating agreements
• Copies of federal state and local information or income tax returns for each of the LLC's six most recent tax years
• The amount of the cash contributions, descriptions and statements of value for any other contribution made by each member
• Events requiring the LLC to be dissolved and its affairs concluded
• The date that each member in the LLC became a member
• Correct and complete books and records of account of the LLC

If asked by a member of the LLC, you will need to furnish this information in a timely fashion. The required documents will vary state-to-state, and access rights and times may vary as well.

Do LLC's need an operating agreement?

No. However, if you don't have an operating agreement, the LLC will operate under your state's default guidelines.

One example where this would be unwanted would be if two individuals formed a LLC and one member contributed 75% of the capital and the other contributed 25%, but they both wanted to split the profits evenly.  If the state in which the LLC resides required that members receive profits based on ownership, then the LLC would be violating the operating agreement. If the LLC had an operating agreement that stated how the profits were to be distributed, there would be no issue.

When and what should LLCs document during meetings?

All of the following should be documented during meetings of the LLC's ownership:

• Vote(s) on any matter in which your operating agreement says requires a vote of the membership
• Change of LLC operating agreement
• Amendments of LLC's articles of organization
• Any significant capital outlay
• Major recurring expenses
• Purchase or sale of real property
• Introduction of a new product line or service
• Discontinuing of a product or service
• Taking legal action (pursuing a lawsuit)
• Settlement of a lawsuit
• Approval of significant business, legal, tax, or financial decisions
• Change, hiring or firing of managers
• Ownership changes
• Moving of headquarters
• Opening a new location or closure of a location
• Overview of business for the last year
• Business plans

Are LLC's affected by personal bankruptcy? If a member of the LLC files personal bankruptcy, can creditors seize the ownership interest in the LLC?

State laws vary, but usually, yes.

Ownership of a LLC is personal property, like a house, car or stocks from a publicly traded company.  Once a creditor forecloses on a member's ownership, they generally don't have voting rights. They can collect profits that have been distributed. If the LLC doesn't regularly distribute profits, there isn't much value to a creditor.

In some states, the creditor can petition the court to liquidate the LLC. This, of course, is an extreme measure. If the creditor does manage to secure voting rights, this can be devastating to an LLC, as the creditor will usually do whatever they can to collect money.

The following states have statues that prohibit foreclosure and liquidation: Arizona, Arkansas, Connecticut, Delaware, Idaho, Illinois, Louisiana, Maryland, Minnesota, Nevada, Oklahoma, Rhode Island and Virginia.