This is Part 2 of the post, “Why Your Small Business Needs the Corporate Formalities.”
2. “I don’t have time to deal with Corporate Formalities.”
In other words, you want to file that short online form and be on your way. Listen, we understand you’re a small business owner and a million things are demanding your attention at any given moment. Dealing with Corporate Formalities is taking up all kinds of time that you could be using to grow your business. And you don’t even need these things to do business! Yeah, we get it. But you know what else takes a lot of time? Getting sued. Saving time now could cost you a whole to of time later. See excuse number 3, below.
3. “I don’t need/want formalities.”
This excuse comes in many different forms. Sometimes, small business owners think their companies are too small to need Corporate Formalities. That stuff is only for big companies, right? Other times, small business owners simply don’t want any type of restrictions in place. It can be more convenient for you, especially in the early stages of your business, to do everything off the cuff. Instead of memorializing things such as agreements between partners and company policies, it just seems so much more “small business” to evolve organically and go with the flow.
However, there are two very good reasons to establish and maintain your Corporate Formalities. First, Corporate Formalities memorialize your intentions and show that you are committed to your business goals. They create a paper trail of how you do business, which can be invaluable in situations such as when you want to bring in additional owners/investors. In other words, how do you hold a company accountable regarding its goals and intentions if its goals and intentions are not formalized?
Likewise, certifications and other programs that could be beneficial to your business may require proof of established Corporate Formalities. For instance, the B-Corp certification program provided by B-Lab looks to Corporate Formalities as a way to confirm that B-Corp applicants maintain practices in line with B Lab’s goals. Many trade associations also expect member entities to have Corporate Formalities in place.
Second, establishing and maintaining Corporate Formalities helps you avoid ambiguities and misunderstandings and can, in turn, prevent disputes. You may think that everyone involved in your business is on the same page, but bad things can happen to good companies and your business in not immune. What you think is not a problem now can very rapidly turn into a problem later. (“Wait, you thought you were an owner in my business!?”) Formalizing and memorializing the details makes sure that everyone understands what’s going on. Additionally, if you do find yourself in the midst of a dispute, you can rely on your Corporate Formalities to support your position.
Do Corporate Formalities require extra time and resources? Yes. Will Corporate Formalities prevent disputes and disagreements from ever arising? No. But your Corporate Formalities are your tools for weathering the storm(s).
The law is always changing. We cannot guarantee that the information provided herein is current and accurate. Every situation is different. Do not refrain from seeking legal advice from a lawyer because of anything contained in this blog. Consult an attorney for individual legal advice regarding your own situation.