Govern Yourself Accordingly: Don’t forget to manage your company

March 18, 2017|

Whenever I get a letter from another attorney directing me or my client to “Govern yourself accordingly,” I always think, “What a pretentious a##.” But it fits for this article.

If you own or manage a small business, it is very likely set up as a corporation or limited liability company (LLC). Most small businesses do not devote sufficient time or attention to the formalities of governing their company. By this I mean adhering to the bylaws or operating agreement that should have been established at the company’s formation. Even worse, maybe you never adopted bylaws or an operating agreement, so the rules that apply to your business are the default rules created by the government.

Corporations have shareholders, directors and officers. LLCs have members and maybe managers. Each of these groups has specific roles to play in governing and running the company. In a small business, one person might play multiple roles or even all the roles. Maybe you are the sole owner and the company manager. You should still have meetings and prepare resolutions for actions as dictated by the bylaws or operating agreement.

I know it seems kind of silly to have a meeting of the board of directors to pass a resolution recommending to the shareholders that the officers be authorized to take some action when you are the sole shareholder, the only board member, the president, secretary and treasurer of the company. Why bother, right? Here’s why: A significant part of the benefit of doing business in one of these entities is liability protection. If you do not respect the formalities of the entity, neither will the court. The court may well decide that you were ignoring the entity and therefore you are not entitled to shelter behind the protections of the entity. This is called “piercing the corporate veil,” one of my favorite legal expressions.

So, bottom line, to protect yourself and your assets, make sure your entity has all the necessary rules and that they are followed. And remember, as I learned long ago in the Navy, if you do not write it down, it did not happen.

Reminder: Corporations and LLCs registered in the state of Georgia must file their annual registration with the Georgia secretary of state by April 1. Failure to register will lead to administrative dissolution of your entity — the legal equivalent of pouring acid on it.

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