Why it is Important to Have a Corporate Formalities Checkup for Your Business in Illinois

Cari Rincker Business Law, Business/Commercial Law Leave a Comment

Most people don’t have to be reminded about having annual checkups at the doctor and dentist’s office. However, it’s not unusual for those same individuals to ignore the need for annual corporate formalities checkups.

This is an especially critical practice for smaller businesses that don’t have an in-house legal department. If you’d like to ask for a corporate formalities checkup for your business, contact Rincker Law today.

Businesses need a corporate formalities checkup at least once a year.

What Does a Corporate Formalities Checkup Involve?

Usually, it’s time for assessing whether or not the company has observed the formalities that are required by law. These formalities may include holding an annual shareholder meeting and ensuring that separate business records are kept. Companies that don’t observe such formalities may expose the shareholders to personal liability.

This means that observing corporate formalities is crucial to ensuring that the corporation and its owners remain legally distinct.

Despite their importance, it’s not all that unusual for businesses, particularly new ones, to overlook some corporate formalities. For example, many new ventures neglect to hold an initial organizational meeting in which directors and officers are elected, bylaws are adopted, and the first shares are issued.

Another formality that may be forgotten is the annual shareholder’s meeting. This is the meeting during which the election of directors is held. Moreover, some companies make a misstep by not ensuring that quorum requirements are met for the board of director meetings.

Yet another common mistake is failing to properly maintain the records and books of the corporation. Other companies forget that any conversions, amendments or other changes to the corporate charter need to be approved by the shareholders and the board and recorded with the state.

What Happens if a Corporation Doesn’t Observe the Formalities?

The consequences can be dire. It’s possible that the election of directors and any actions since the incorporation date will be invalidated. Additionally, the company may be unable to borrow money because it’s not possible to make the necessary representations in the loan documents.

With the possibility that issued shares may be deemed void and that a publicly-traded company could be delisted, it’s clear that an annual corporate formalities checkup is an essential part of doing business in Illinois.

If you aren’t certain that corporate formalities have been properly observed by your company in recent years, it’s time to contact Rincker Law at (217) 774-1373.


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