What Is Corporate Housekeeping?

A corporation is an entity that is separate from the people whose ideas created it. When an entrepreneur incorporates, he is foregoing sole proprietor status and allowing the business to stand alone as a legal being. In exchange, the entrepreneur enjoys limited liability, protection of personal assets and tax benefits. Although the corporation is an entity in itself, as an imaginary being, it cannot execute the necessary procedures and protocol that must be carried out for the corporation to maintain its status and operate legally. This corporate housekeeping must be maintained.

Consulting attorney Robert G. André discusses the formalities a corporation must attend to in his publication titled, "Corporate 'Housekeeping.'” The corporation must adhere to all government requirements, such as submitting an annual report to the state and maintaining necessary business licenses. The corporation must adhere to all corporate laws, which usually require annual shareholder meetings, board of directors meetings and minutes (a transcript) of those meetings. In addition, shareholders must be made aware of decisions that impact the welfare of the corporation. Any major decisions, such as mergers, acquisitions or a liquidation, should not proceed before a shareholder vote.

The corporation must have its finances in order. If the corporation lends money to an interested party (someone with something to gain), the loan must be at a legal interest rate and have late payment penalties as any other loan would. The corporation must provide sufficient capital to meet its risks and liabilities. If a corporation was formed with little capital and has large debt, the court could view this as an abuse of the system and allow creditors to come after personal assets. In addition, any excessively "high salaries, bonuses or other payments to insiders" could cause problems for the corporation, André asserts.

A board member or entrepreneur cannot mix corporate funds with personal funds. In her 2010 article titled "Attend to Your Corporate Housekeeping," New York business lawyer Nina Kaufman calls this "commingling of funds." These accounts must be kept entirely separate. Mixing these funds is asking for trouble.

Adequate records and documentations are also essential to proper corporate housekeeping. The corporation should have on record documentation such as the details of each meeting it holds, accounting records, a record of each shareholder and copies of written communication to shareholders. A legitimate paper trail is the best form of protection for the corporation and its interested parties, André asserts.