All corporations around the world have one thing in common: paperwork.
There are tons of forms to fill out and file, including tax forms, the business ledger, annual reports, and more. While corporate record keeping isn’t the most fun job, it’s absolutely crucial entrepreneurs stay on top of their corporate records if they want to run a compliant business.
Scaling a business demands organization at all levels—and your business records are no exception. And contrary to popular belief, corporate record-keeping isn’t very tedious. But you have to do it correctly to eliminate bottlenecks.
Keep reading as we explore the elements of corporate record keeping and discuss some tips and tools to help you keep your corporate records secure and accessible.
What is Corporate Record Keeping?
Before discussing corporate record keeping, let’s understand what corporate records are.
Corporate records are important documents about your business that, as a U.S. corporation, you’re required to retain to prove you’re complying with state laws and the rules laid out by the Inland Revenue Service (IRS).
Think of it as the formal logbook of your company’s decisions and activities.
Your corporate records comprise crucial documents and files, which should be held in a single, central place, so they’re easily accessible in the event regulators come to audit your company.
As you may have guessed, corporate record-keeping refers to the process of storing all your corporate records in an organized manner. Record keeping is also often called records management and refers to both physical and electronic records at all levels of an organization.
The Basics of Corporate Record Keeping
Let’s delve into the nuances related to corporate record-keeping and everything it entails.
Proof of Compliance
Corporate record keeping has both practical and legal value for your business. For instance, you can track your corporation’s progress over the years and file future tax returns using corporate records like annual reports and previous income tax returns.
More importantly, though, corporate record keeping maintains what is known as the “corporate veil,” which refers to the division between the corporation’s assets and the corporation owners’ personal assets.
Suppose someone sues your business. They may try to pierce your corporate veil and go after your personal assets as part of their settlement. To do this, they’ll claim your business has failed to follow the proper corporate formalities laid out by the state.
However, all their claims will be dismissed if you keep all your records properly. You see, properly stored corporate records can prove your business has complied with all applicable laws, thereby eliminating any threats to any personal assets.
In other words, corporate record keeping will keep you and your business protected during lawsuits and audits.
Corporation vs. LLC State-Imposed Requirements
Different states have different rules about corporate record keeping. However, corporations always have more state-imposed requirements than LLCs. The documents to keep track of will vary depending on whether your business is a corporation or an LLC.
For corporations, here are the files you must keep at your place of business:
- Articles of Incorporation, along with any amendments filed with the state
- Names and addresses of directors and officers
- Names and addresses of shareholders, including their number and class of shares
- Documentation of all shareholder and director meeting decisions and actions, also known as meeting minutes
- Corporate bylaws that outline your plans on how you’ll run the company
- Annual reports
For LLCs, you need to keep the following records at your place of business:
- Operating agreement
- Names and addresses of all members and managers
- Articles of organization, along with any amendments filed with the state
In addition to documentation, other related details like how long to keep records and how to store them also varies. If you decide to start conducting business in other states, make sure you adjust your record keeping policies to comply with that particular state’s requirements.
Please note the above list isn’t final. You may need to add other items to it, but it’s also possible your corporation may not need to keep every record as well.
Meeting Minutes
Meeting minutes are an incredibly crucial part of corporate record keeping. They serve as the official record of corporate activities, where all major votes, resolutions, and transactions that affect the company are appropriately documented.
While corporations are generally required to keep meeting minutes, LLCs don’t need to unless this task has been specially mentioned in the operating agreement.
Your meeting minutes may also include the following activities:
- Issue of stock
- Elections of new directors or officers
- Annual director and shareholder meetings
- Compensation hikes
- Approval for the financial decisions like sale of assets, business loan, S corporation tax status election, or acquisition of another business
- Approval for items like a group health plan, long-term lease, all other similar crucial decisions that affect the company
There’s a common misconception that meeting minutes have to be excruciatingly detailed. This couldn’t be further from the truth. Instead, meeting minutes are typically written in simple language, where the person responsible for them only outlines the basic facts.
Corporate Record Storage
Here’s where things get flexible.
The law dictates that you retain records, but it doesn’t explicitly state how to keep them. This flexibility lets you choose a record-keeping method based on your requirements and preferences.
The only catch is to ensure all your records are correctly organized, secure, and thorough, whatever your method.
Some corporate records follow the more old-school process of physical records, where they print out hardcopy files in a physical kit. Others opt for the more environmentally safe, paperless method, where they maintain electronic files. Be sure you have a data backup, regardless of the method you select, as insurance in case of loss.
As for understanding who is responsible for storing the records, that is where things can get more complicated.
Different organization members create corporate records. The corporate secretary creates meeting minutes during every board meeting; the board of directors establishes bylaws, passes resolutions, and prepares annual reports; the accountants are responsible for creating and maintaining financial records, bank statements, and tax returns, and so on.
For better results, I recommend informing everyone of their respective responsibilities to ensure everything is done correctly.
Record Keeping Time Limit
Entrepreneurs often wonder how long they should keep corporate records—something that depends on the recorded item, expense, or event.
You should determine the period of limitations for the item recorded. This refers to the time you take to amend your tax return to claim a fund or in which the IRS is allowed to access additional taxes. Generally, the IRS recommends keeping records for two to seven years, depending on the nature of the recorded item.
The IRS has also made it obligatory for corporations to have documents to record asset depreciation. So if an item depreciates for five years, all records pertaining to that particular item should be kept for that five-year period.
Keeping and maintaining corporate records is also essential for organizational purposes and protects your business, irrespective of IRS regulations.
5 Tools to Improve Corporate Record Keeping
Below, we’ll discuss the five main categories of tools you can use to streamline record keeping.
Records Management Software
If you have an HR department within your organization, you need records management software.
These tools are designed to handle the lifecycle of records from creation to disposition.
Using record or document management software like Microsoft SharePoint or OnBase will help you meet legal retention requirements concerning your corporate documents and records, protecting you from all kinds of problems, including fines, unsuccessful audits, and even jail time.
Meeting Minutes Software
As discussed, meeting minutes are an extremely important part of corporate records. You have to be thorough and quick when it comes to recording meeting minutes.
Precisely why you should consider using meeting minutes software that can keep track of all that happens in a meeting, including capturing notes, assigning action items, document formatting, and meeting minutes distribution to team members.
I highly recommend checking out tools like the Beenote and Meeting Booster.
Cloud Storage Service
As the name suggests, a cloud storage service allows you to store all your corporate records on the cloud, making them easily accessible on the go.
Cloud storage is a cloud computing model that stores data on the internet through a file hosting service like iDrive and pCloud, which are responsible for managing and operating data storage as a service.
Besides convenience, you’re also assured of top-class security for all your data and cheaper service.
Entity Management Software
Entity management software gives you a secure, cloud-based space to store all information, documents, and organizational charts related to your entity to create a single source of truth for corporate record keeping.
Company secretaries can use this software to perform various tasks, such as managing the ongoing accuracy of corporate records using compliance calendars, reminders and workflows for improved data, reporting regulatory requirements, and electronically filing statutory forms to global regulatory bodies.
Our top management software choices are Diligent, Wrike, and ADP SmartCompliance.
Accounting and Payroll Software
Accounting software can generate customer invoices while simultaneously helping you improve bookkeeping basics, recording accounts receivable, among other tasks.
On the other hand, using payroll software will take care of creating payroll tax records (Forms W-2, Forms 1099-MISC, Forms 1099-NEC, Forms 941). What’s more, the software will also take care of generating and filing these forms with the appropriate authority.
While Zoho Books and QuickBooks are my top picks for accounting software, I’ve had a good experience using ADP and OnPay payroll services.
3 Tricks to Improve Corporate Record Keeping
Now that we’re done with the tools, here are a few handy tips for better corporate record keeping to keep your blood pressure down during audit and tax season.
Proper Indexing and Categorization
You must know exactly where all your information is at all times. For this, you’ll have to accurately index and categorize every document stored for corporate record keeping.
You should be able to locate every file and seamlessly distinguish between active files and archival documents.
Practice Document Disposition
Just as you should review record retention mandates, you should also know when to destroy them.
Final disposition dates are the expiration dates of legal statutory periods, after which you can destroy expired records without having to worry about legal repercussions. You can consider partnering with a NAID AAA Certified shredding company to ensure all your files are destroyed securely and within a strict chain of custody.
Provide Employee Training
Every individual in your organization should know your company’s record management policies and procedures, which is why workforce training is so crucial.
The idea here is simple: the more you educate your employees on corporate record-keeping best practices, the more securely and efficiently they will handle your information.
I recommend distributing written copies of your records retention policies to inform employees how to store or destroy important data. You can also schedule ongoing training sessions to keep staff updated on evolving privacy protection and compliance regulations and trends.
What to Do Next
Now that you have a fair idea about corporate record keeping, the next step is implementing what you’ve learned.
Start by adding our advised set of tools within your corporate system to record all the necessary data and handle it in a secure and organized manner. You should also train your employees in corporate record-keeping best practices to set them up for success.
Check out the following Quicksprout guides for more insights:
Source: quicksprout
The Beginner’s Guide to Corporate Record Keeping