Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
Corporate record keeping and official documentation are often a concern for entrepreneurs who know they are important but haven’t had the time to understand them. This can be the case for new businesses, perhaps because they are currently more focused on production than administration.
However, corporate records are simply documents relating to the current business practices and history, including daily transactions and annual meetings that tell the story of the business and support the decisions made.
Ensuring documents and business records are detailed, kept safe, and regularly updated will benefit your business in numerous ways, and should evidence be required, it will always be on hand. Let’s dive into what you need to know about corporate record keeping.
What Are Corporate Records?
Corporate records are the business documents in either hardcopy or electronic form that a company must keep to prove their business practices align with the Internal Revenue Service (IRS) and state law.
Although a few rules extend over any business in the United States, what information you choose to keep for your business will be based mainly on state laws and the type of business you operate.
All businesses in the United States must keep a detailed corporate record and related financial information for tax purposes; however, what that record contains and its complexity can vary from state to state and from business to business.
Why You Need to Keep Corporate Records
Keeping good corporate records shows your business practices are above board and in compliance with state law. They show all decisions discussed, made, and the ramifications from those decisions for audits or future buyers of the business.
Records are also necessary as evidence should your business be audited by the IRS to prove deductions and to show the division between the owner’s assets and business assets.
However, corporate record-keeping has benefits far beyond the legal implications, and businesses should keep them for their own well-being in addition to compliance reasons.
They play a crucial part in developing and maintaining healthy business practices with transparency, recording financial transactions, and giving a detailed account of the history of the business.
Additional record-keeping benefits for your business include:
- Helps monitor progress in structure
- Tracks financial growth or loss over a fiscal period
- Proves the business’ financial health to outside investors and banks
- Assists with tax preparation
- Account for all deductible expenses
Of course, the benefits from the record-keeping practice will depend on what the corporate records contain.
Businesses should consider their accounting methods, including how often information is set down for financial reasons such as daily, weekly, or monthly and begin keeping transactions based on that method.
Linking the business records to a task already completed has the added benefit of being less likely to be overlooked.
What Your Corporate Records Should Contain
Every state has its unique requirements that businesses must follow if operating within state boundaries.
To ensure compliance, look into the corporate record requirements for the state the business is operating in to ensure all mandatory records have been accounted for.
Regardless of the state, there are some commonalities between record-keeping requirements across the United States for the types of records that every business should keep as part of their corporate framework.
These six broad categories encapsulate most corporate records required by the state or recommended for sound business practices.
1. Operating documents
This category includes all the information relating to internal operations, such as the business bylaws, operating agreement for LLCs, and any changes or amendments made to those rules.
2. Organizational records
Organization records include constitutional documents like the articles of incorporation and how the structure of ownership is organized—records relating to how the business has come to decisions facilitated by the leadership structure and past leadership structures.
These documents show the current hierarchy within the business and demonstrate past leadership and any potential risks.
3. Ownership records
No business is alike, and that is keenly reflected by the volume of information a company will need pertaining to ownership, mostly dependent upon its size and type.
This category includes records relating to all company owners, partners, directors, and shareholders, including past and present. It’s standard in many states for businesses to retain ownership records for taxation and legal purposes.
Those records should include complete contact information, addresses, and associated corporations. Full disclosure is essential to assist in any future legal issues such as conflicts of interest that may arise.
4. Shareholder contribution records
These records include a breakdown of all the contributions made by each shareholder and owner. The documents should separate owner contributions at the bookkeeping level rather than being recorded as income.
5. Financial and Personnel documents
This tranche of documents and records relate to the businesses’ daily operation, employees, finances, and tax status.
As a standard, accounting records encompass all the finances, from daily cash flow, journals, and ledgers to the purchase and sales of assets. These are the documents that support the business’ tax filings to the IRS.
Businesses must keep all current employee records. Past employees’ records must also be retained, but for how long will be determined by state regulation.
The information contained within the records may vary from business to business but often includes: payroll, insurance or stock contributions, application forms, medical records, expense accounts, and overtime details.
6. Meeting minutes
All director and shareholder meetings should have minutes taken by an assigned person, which often happens to be the executive secretary. They are then kept with other important documents.
Meeting minute templates are available from a variety of sources to ensure all relevant information is recorded; however, the format largely varies by what works for the business.
Recording minutes of all important meetings is not just important for legal reasons, but it also keeps a growing record of the decisions made, actions taken, or rejected motions, including who voted for and against them.
Should a decision arise multiple times in the company’s history, it can be helpful to look at past experiences with that topic before another vote is held.
How to Keep Your Corporate Records
Records can be kept as a hard copy or in an electronic format depending on the type of business and the wishes of its owner.
Some businesses may choose to keep both or keep certain documents hard copy and others electronic for ease of sharing. Most states require a copy of the corporate records to be held at the principal office where the company operates day-to-day at minimum, and others require an additional copy to be held outside of the business.
Even in a small business, keeping corporate records can take time. As the information covers many situations and multiple levels of ownership in the case of large companies, many people streamlining the process can be helpful.
Many different people will be touching the corporate records, so it’s essential to establish guidelines for what information must be included and what can be omitted. All staff should understand the importance of detailed record-keeping and ensuring compliance is met.
An example of those outside directors that may interact with the corporate records comes down to daily transactions.
Staff may handle daily journal transactions, accounting professionals handle financial records, and administrative staff may update meeting minutes. Keeping corporate records up-to-date requires several people to ensure they are updated efficiently.
Note that owners of multiple businesses should keep a complete set of records for each company tailored to that business’s accounting method.
It is not advisable to keep a large group of records that incorporate every interaction from every business. In fact, in many states, it’s against the law to group books together.
Separating each business is advisable, just as it’s essential to keep personal and business tax documents separate and distinct.
Examples of Corporate Record Entries
This list is not exhaustive, but should give examples to build a foundation.
- Articles of incorporation
- A copy of business bylaws
- Journals and ledgers
- Appointment of a board of directors
- Names and addresses of shareholders, directors, and board members (past and present)
- Deductible expenses
- Support items for tax purposes such as receipts, invoices
- Purchase or sales of assets
- Shareholder or director meeting minutes
- Stock transfer ledger
- Copies of any documents filed with the state
Do You Need to File Your Corporate Records With Your State?
Corporate records don’t need to be filed with the state or the IRS; however, that doesn’t make them less critical.
Should the state request information from your business or the IRS chooses the business to audit, the corporate records must be in good order, up-to-date, and reflect the business practices.
The Last Word
Corporate record keeping doesn’t need to be complicated or time-consuming. The basic premise is simple: to document and keep a record of the past and present of the business.
While the initial setup will take time once a system is in place, it should only take a short amount of time to update it regularly.
Speak with a business attorney or tax official if there are concerns that corporate records are missing or the owner cannot easily obtain industry-specific documents. The efforts put into the documentation can save a lot of time and money in the future.
Filed under: Advice Columns