The Danger of Poor Documentation and How to Avoid It
This is my site Written by CPorterEsq on April 7, 2011 – 11:54 am

Note: This article was originally published in my quarterly print newsletter that came out April 1, 2011. If you are not on my mailing list but would like to be among the first to get tools for running a successful business delivered directly to you, please email me.

One of the biggest mistakes I see founders and owners of businesses make is not properly maintaining corporate documentation. If your records are a mess, you may face personal liability for the debts of the company. You also could create problems during an acquisition. When appropriate documents are missing or lost, a buyer conducting due diligence will have difficulty determining whether your assets and liabilities are as you say they are and whether you’ve properly protected your rights.

Fortunately, maintaining proper records is easy. Here’s what you need to do:

The first step is to familiarize yourself with the documents required for your business type. The documentation required to maintain a corporation, LLC, partnership, sole proprietorship, etc. are different. If you aren’t sure what documents you need to maintain, work with an attorney to make a list. Once you have a list, create a binder (or electronic file folder) where you will store the documents.

Even if your business requires a minimum amount of formal paperwork, you should document the most significant actions, including:

  • Authorizing bank accounts and design-nating who’s eligible to sign checks and withdraw funds
  • Borrowing money from a bank, board member, or co-owner
  • Amending the operating agreement
  • Entering into major contracts
  • Buying, selling, or leasing real estate
  • Electing corporate-style taxation or a tax year other than a calendar year
  • Authorizing distributions of profits to members
  • Admitting new members
  • Authoring the company purchase of the interest of a departing member/owner


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