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The Annual Meeting: What Every Corporation Should Know
All registered corporations are required by law to hold an annual meeting. Limited liability companies (LLCs), while not subject to the same statutory requirement, may hold regular meetings according to their governing documents.
Purpose of a Corporation’s Annual Meeting
In the United States, all corporations must hold an annual shareholder meeting by law. State laws differ slightly on the specifics, but typically, these meetings address the company’s annual report, board of director elections, new business ventures, changes to internal procedures, and dividends.
The annual shareholder meeting usually takes place shortly after the fiscal year ends, allowing for discussion and review of the previous year’s financial performance. Some activities during this meeting may also be necessary for the annual corporate report, which most states require.
Additional actions requiring shareholders’ and the board’s approval may include:
- Amending company bylaws
- Reorganization, including mergers and acquisitions
- Asset sales
- Issuing securities
- Determining executive salaries and benefits
- Changing shareholders’ rights
- Dividend payments
- Dissolving the corporation
The corporate actions that will be taken by a vote of the shareholders at the annual meeting should be specified in the corporate bylaws. Bylaws should also detail voting procedures, such as when a matter should be put to a vote or whether a simple majority or a supermajority is needed.
The annual meeting is crucial for maintaining the corporate legal structure. Corporations provide a liability shield that protects shareholders’ assets from business liabilities, but this shield can be jeopardized if the corporation fails to hold annual meetings. Failure to comply could allow creditors to “pierce the corporate veil” and pursue shareholders’ personal assets to satisfy business debts.
Purpose of an LLC Annual Meeting
An LLC operating agreement may require annual or regular meetings. Failure to abide by this formality can jeopardize the LLC liability shield.
Practical reasons for LLC members in [state_name] to convene include:
- Discussing strategy, ownership, and issues facing the company
- Establishing a record of key company events, decisions, and member voting records
- Measuring progress on previously decided plans and proposals
- Addressing leadership changes, operating agreement amendments, and member additions or removals
- Promoting good communication and decision-making processes
- Having a CPA or attorney present to address questions related to taxes, accounting, and legal issues
Meeting rules and accurate records can serve as evidence that the company is legally separate from its members and is being run well.
How to Hold an Annual Meeting
When an LLC’s operating agreement or articles of organization require annual meetings, members should comply with formalities such as providing notice or preparing minutes. If meetings become burdensome, LLC members can modify the governing documents to eliminate them. Alternatively, the operating agreement can include a provision allowing unanimous written consent in lieu of meetings.
Corporations in [state_name] are subject to more stringent compliance standards. Typically, a corporation must:
- Give written notice to shareholders at least 10 days prior to the meeting
- Have a quorum (usually more than half) of shareholders present
- Keep meeting minutes that comply with disclosure rules in the bylaws
Publicly traded corporations must also comply with the SEC’s proxy rules, requiring disclosures to shareholders in a proxy statement describing matters up for a vote, along with a proxy card [1].
Get Step-by-Step Legal Guidance
A corporate or LLC structure provides a business with a separate legal entity status from its owners. However, this separation can be jeopardized if the company does not hold annual meetings and obey other formalities.
State law dictates many procedural requirements for annual corporate meetings, including notices, quorum rules, and whether the meeting can be held virtually. State laws also govern the articles of incorporation and bylaws that contain annual meeting requirements.
Our business attorneys can help ensure that your corporation or LLC complies with all requirements related to its annual meetings or other formalities required by state law or the LLC operating agreement. For legal advice about your corporation’s or LLC’s annual meeting, schedule a consultation.
Contact an experienced tax attorney at The Law Office of Jason Carr, PLLC for help in resolving your tax issues in [state_name].
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