A key part of running a successful business entails keeping accurate and current company records. In addition to helping business owners understand their firms more effectively, up-to-date business records aid with informed decision-making and provide legal and financial safeguards. New Orleans business owners will want to learn how to keep up-to-date corporate records and the importance of doing so. Consider contacting an experienced business formation attorney at the Business Law Group by calling (504) 446-6506 to schedule a consultation.

Understanding Corporate Records

Company records are the documents that businesses present to the Internal Revenue Service (IRS) and other governmental and regulatory agencies to demonstrate that the firm is complying with the relevant laws. According to the Securities and Exchange Commission (SEC), company records can indicate whether a business is suffering a loss or generating profit, and the reasons behind those totals. Examples of these records include:

• Tax, bookkeeping, and accounting records

• Articles of incorporation

• Director and annual shareholder meeting notes

• Documents needed by the state government

• Company bylaws

• Resolution records, such as those linked to employee benefits, hiring, or loans

• Property purchase and sale transaction records

• Details concerning significant redundancies, expansion into new markets, and setting up new company locations

• Stock transactions, owners, and dividend information

• Shareholder communications

• HR records

• Officer and director contact information

• Contracts, permits, and licenses

• Credit card and bank statements

• Insurance documents

Why Should Records Be Kept Up-To-Date?

According to the IRS, up-to-date records help business owners evaluate how their firms are progressing, prepare financial statements and tax returns, identify income sources, monitor deductible expenses and the amount paid toward property, and provide evidence of the items listed on tax filings. Following is a more detailed explanation about how vital it is to keep accurate company records to monitor growth, reduce preparation time, and keep income and expense information separate.

Avoid Piercing the Corporate Veil 

One of the primary reasons for maintaining corporate records is to demonstrate compliance with legal formalities. Failing to adhere to these formalities can provide grounds for piercing the corporate veil. Courts typically look for evidence that the corporation operated as a separate legal entity distinct from its owners. Comprehensive corporate records serve as tangible proof of the company's adherence to these formalities, such as holding regular shareholder meetings, maintaining accurate financial records, and following proper corporate governance procedures.

Inadequate or incomplete records can cast doubt on the legitimacy of the corporation's actions, potentially leading to the piercing of the corporate veil and exposing individuals to personal liability. When the corporate veil is pierced, it essentially means that the legal separation between a corporation and its shareholders or owners is disregarded. Piercing the corporate veil can have several significant consequences including personal liability for shareholders, directors, or officers of the corporation, loss of asset protection, loss of corporate benefits and damage to the company's reputation. 

Overall, piercing the corporate veil is a serious matter with far-reaching consequences for both the company and its stakeholders. It underscores the importance of proper corporate governance, compliance with legal formalities, and ethical business practices to maintain the integrity of the corporate structure and protect the interests of all parties involved.

Monitor Business Growth

When reviewing generated reports, statistics, figures, and other records, business owners can monitor the progress of their companies, allowing them to identify areas of improvement and positive aspects of the company. With this information, business owners can also devise strategies that help boost company growth.

Reduce Statement and Accounts Preparation Time

Organized and accurate records can make it easier to prepare financial accounts. With a clear record of a company's expenses and income, putting together profit and loss statements or end-of-year accounts requires far less effort. Moreover, up-to-date records of a company's equity, assets, and liabilities are necessary for producing sound balance sheets.

Help Separate Expense and Income Types

Accurate record-keeping helps business owners separate their own income from the company's revenue. Separating a business owner's personal receipts from company receipts ensures that only permissible expenses are included on a company's tax return.

To gain a more comprehensive understanding of how to keep accurate, up-to-date corporate records and learn why companies should do so, bring your queries to a New Orleans business formation lawyer with the Business Law Group.

Why Is It Important To Keep Accurate Records of a Company?

Some of the other reasons for keeping accurate company records include the following:

• Accurately record deductible expenses: Effective record-keeping makes it easier to spot deductible expenses for tax return purposes and pinpoint when the receipts needed to support these expenses are missing, which can help business owners save money.

• Improve tax return accuracy: Up-to-date records play a key role in tax return preparation. They help companies avoid underpaying or overpaying taxes and ensure that the reported information is accurate. Furthermore, accurate record-keeping can help companies predict future tax payments. 

• Gain evidence for audits: The IRS could decide to inspect a company at any time. Maintaining up-to-date corporate documents ensures that evidence is readily available for proving the information reported on tax returns, making audits straightforward and helping businesses avoid potential penalties for not providing the requested documents and receipts.

• Effectively manage payroll, payments, and profit distributions: Running a business involves various elements, including paying contractors and employees, chasing outstanding payments, and distributing profits to partners or shareholders. Keeping accurate records of timesheets, invoices, and receipts makes it easier to keep abreast of these crucial tasks.

How Do You Maintain Corporate Records?

The following tips can help business owners maintain accurate company records:

• Understand what information to record and for how long: If the document could prove useful for a lawsuit or audit, then storing that information accurately is worthwhile. The IRS usually recommends keeping records between three and seven years, although businesses may wish to maintain up-to-date records for longer if possible to further mitigate risk.

• Utilize electronic tools: Keeping up-to-date physical company records is a challenging task and impractical at times, particularly for larger organizations operating across several locations. Such files are easily misplaced and vulnerable to unforeseeable external events like theft, floods, and fires. Instead, utilizing digital tools for specific record-keeping tasks, such as bookkeeping and employee records, can boost efficiency, collaboration, and record security.

• Research state requirements: In addition to IRS requirements, many state regulations govern company record-keeping, and understanding these differences is crucial for compliance. For instance, Louisiana Rev. Stat. § 12.1.1601 requires certain company records to be stored at the business's principal address.

• Assign responsibility: Company leaders must delegate the responsibility for maintaining accurate company records to appropriate individuals. For instance, department heads might be responsible for overseeing accurate record-keeping for their respective departments.

• Prepare for expansion: Corporations often seek to expand their operations to improve profitability. While keeping records organized can be easier during the early stages of a company's lifecycle, it can become more challenging as the business expands. Preparing for expansion at the start with regard to record-keeping, such as investing in cloud storage and other record-keeping infrastructure components, makes it easier to locate old resolutions, contracts, or other files when needed.

Contact a Louisiana Business Formation Attorney Today

Correctly storing accurate company records helps promote efficiencies, saves money, and reduces risk. Business owners with queries related to effectively developing and introducing a record-keeping system may wish to speak with a business attorney. To explore how to keep up-to-date corporate records in your business, consider contacting an experienced Louisiana business formation attorney from the Business Law Group by calling (504) 446-6506 to schedule a consultation today.