Hold Regularly Scheduled Meetings

April 13, 2006

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A failure to hold required meetings or execute written waivers has been used to pierce the veil of limited liability in numerous cases through application of the alter ego theory.

Both the limited liability company (LLC) and the statutory close corporation can negate the need for meetings. However, a conventional corporation is required by statute to hold, at a minimum, annual meetings of shareholders and directors. These meetings are governed by statutory rules regarding required notice, quorums, voting, etc. Care must be taken that all of these requirements are followed. The meetings can be waived, if the waiver is in writing and unanimous. Business is then transacted in the written waiver form.

Sometimes the operating agreement for an LLC or a statutory close corporation may require meetings of the management. This may be desirable, for example, in a large, multi-owner organization, to prevent any one individual from carrying out activities without the knowledge and authorization of the other owners. Where meetings are required by the operating agreement, there may be less of a likelihood that piercing of the veil of limited liability would be applied due to a failure to hold meetings, as the meetings are not mandated by statute. Nevertheless, in this situation, it would be wise to follow the previous advice regarding meetings in the conventional corporation.

In a one-owner entity, or an entity with just a few owners, it may be advisable in the operating agreement to dispense with the need for meetings altogether and instead delegate authority to particular owners to carry out the business's operations. This eliminates a frequent avenue of attack under the alter ego theory.