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How To Have an Annual Meeting and Why

If you have an LLC or a corporation (Including a Nonprofit) you should have an annual meeting every year, even if you are the only owner, to protect you in an audit and other legal situations.

Do I Need to Have an Annual Meeting?

If you are a corporation, for-profit or non-profit, you are required to have a meeting once a year to meet with the stockholders. If you have an LLC, the law does not generally require you to have an annual meeting, but it is still a good idea. Here’s why: If your business is audited by the IRS, they will want to see that your business is run in an orderly, business-like manner.

I had an audit client who created an entity to hold his rental property. He used it for another purpose for the first few years. Then, he sold one property in a famous resort area at a loss. The name of the street was spelled incorrectly by one letter on some of the paperwork. When the IRS audited, they could not find the address, so they suspected fraud and brought out the big guns. Among many other accusations, they insisted that the LLC wasn’t even a real company and just a shell to hide his real estate transactions and generate fake losses. Really? I pull out the book with the operating agreement and meeting minutes noting the property acquisition. The IRS backed down because he treated the entity like a serious business and kept up with all the paperwork. A complete corporate book and complete meeting minutes is very important if you are being audited, especially if you are a single member LLC filing as an S-corporation. You need to show the IRS you are acting like a corporation to be treated like a corporation.

Why Else Would I need and Annual Meeting?

Another time you need corporate meeting minutes is if you are borrowing money. Often banks want to see a ‘borrowing resolution’ authorizing you to sign the loan on behalf of the company. Resolutions are approved at meetings.

Another time is for licensing. If your company needs a license, the book needs to come out.

Finally, the other time the meeting notes (also called minutes) come out the most is when you get sued. I cannot give legal advice on these matters, but I can tell you that it is much like the IRS. If you are running your business like a business, you are in a far better position in the eyes of the law. Having regular meetings means you take your business seriously. It’s not a hobby or a side job or a whim. You are outwardly following the rules and protocols to maintain the benefit of any legal liability protection.

Who Do I Invite and How Do I Notify Them?

If you have more than one partner of stockholder, you need to notify them about the annual meeting, even if it is your spouse. If you are a corporation, the rules for notifying stockholders should be in your by-laws. (By-laws should also be in your corporate book). If you are an LLC, meeting rules may be in your operating agreement. If not, notify all members within a reasonable time, then establish meeting rules at your next meeting.
If you have multiple owners, you need to have a ‘quorum’ to have a meeting. That means you have a fair number of stockholders to vote. If you have eight partners and only three show up to the meeting, any decisions made would not be fair. Again, your by-laws or operating agreement should spell out what percentage of ownership is needed to make quorum.

If it is just you, you can have a meeting without notification and have the meeting by yourself. This may sound silly, but remember, the IRS wants to see you operating in a business-like manner and taking the ‘separate entity’ idea seriously. Sometimes you need to do silly things to prove a point.

You can invite other people to your meeting. I often have annual meetings in my office while I prepare their taxes. You can invite your employees, your accountant, your lawyer, your spouse, or anyone who wants to help you with the meeting. However, only owners can vote (members or stockholders).


What Do I Do at the Annual Meeting?

Imagine that the annual meeting is like a wedding ceremony. It is not the proposal or pre-marital counseling. It is the final approval ceremony for the decisions you already made. If you use my meeting blank, it will be a lot like playing Mad Libs. Once you fill in the basic blanks (who, what, where, when, & why), you need to address any business changes that you have made or will make. Are you borrowing money? Using business assets as collateral? Adding members? Buying back shares? Changing the name? Moving? Getting a new office? Starting a different business? Changing banks? Anything like this should be approved in a meeting.

Decisions are approved using the standard Robert’s Rules of Order published in 1876. One person makes a suggestion (makes a motion), another person says it is a good idea (seconds the motion), the idea is discussed, then a vote is taken to approve. Someone at the meeting (the secretary) writes down everything that happened and keeps a permanent record of the meeting (meeting minutes). If you are the only owner, you make and second all the motions yourself. Non-owners cannot vote. In small companies with few owners, all the discussing and approving should be done long before the meeting.  The annual meeting is a formality.

At the meeting, you need to officially re-elect the officers. Officers are usually shareholders, but that is not necessary. Many people vote their life partner as an officer. You need a president (person in charge), a secretary (person who keeps the meeting notes and corporate book in order), and a treasurer (person who talks to the accountant and signs checks). One person can hold more than one office if there is less than three people who want to hold office. You can be all three if it is just you. The election rules and term limits should be in your by-laws or operating agreement.  If not, that is something you should approve at your next meeting.

Is this tax-deductible?

If you have multiple partners or invite people to materially participate in your annual meeting, YES! You can go have a meal or a party to have your annual meeting and it is a legitimate business expense.

What else?

Other than re-electing officers and approving any major changes, you can choose to adjourn, or you can elect additional procedures, approve the finances and distributions of profit, or anything else you want to include in the official records of the business. Remember, this is the ceremony. Keep it short and simple. Make an official signed copy and keep it in the corporate book. Do this every year!

Download a free Meeting Minutes worksheet here

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