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Five Reasons to Play by the Corporate Rules

October 2, / in 2014 Fall, Written by Mike Gibbons

Most businesses operate using a formal legal entity (either a corporation or a limited liability company). (This article will refer to corporations since those entities remain more commonly used and their formalities are more settled.) The applicable corporate statutes and case law, and good practice generally, set forth rules as to how certain actions should be taken by business owners (shareholders) and managers (the board of directors).

Generally speaking, actions to be taken by shareholders (for example, electing the board of directors) can be accomplished either by voting at a formal shareholders meeting or by signing a resolution (usually unanimous) in lieu of the meeting.  Important management decisions that are typically made by the board of directors (for example, election of officers or setting executive compensation) can be accomplished in the same fashion.  Formal notes (minutes) of meeting should always be taken to summarize the discussions and decisions, usually by the corporation’s secretary or corporate counsel in attendance.