Formality law includes apparently unimportant points of practice that must be observed in order to achieve a specific legal result. It may apply to contracts, copyright issues, and corporations.

Formality Law

Under copyright law, a formality refers to a procedural requirement before being able to receive copyright protection. Formalities involved in obtaining a copyright include the following:

  • Actual publication
  • Copyright notice on the work
  • Registering with the copyright office
  • Depositing the work with the Library of Congress

Formality also refers to the required conditions for making contracts, and the words which must legally be used for contracts to be valid.

What Are Corporate Formalities?

A corporation is a business structure where the company operates as its own entity. The corporation exists independently from its owners. The corporation's owners are shielded from the business's liabilities and losses. However, to enjoy these protections over their personal assets, business owners must follow certain rules and operating guidelines. These are generally known as corporate formalities.

Corporate formalities are precautions and steps that a corporation is required to take to ensure the business remains legally separate from the owners.

Steps may include the following:

  • Holding regular directors meetings
  • Maintaining separate records for business activity
  • Keeping a separate financial account for the business

What Corporate Formalities Usually Include

Each state generally has its own requirements for corporate formalities. These requirements may vary widely and depend on the particular type of corporation. A corporate formalities checklist can help owners adhere to all necessary corporate formalities in order to maintain the corporate veil.

Following are common formalities:

Hold scheduled meetings: Corporations are required to hold shareholders meetings at least once a year. They should clearly state when these meetings are to be held in their corporate bylaws, and include details like the date, time, and other important information. Typically, a shareholders meeting is immediately followed by a yearly board of directors meeting.

Hold special meetings: Any time important business decisions must be made, the corporation should schedule a special meeting. During these meetings, they may need to handle such issues as the following:

  • Changing officer salaries
  • Opening a business bank account
  • Entering new business ventures

All participants should receive advance notice of special meetings.

Keep accurate records: The company must keep accurate accounting of corporate activities and financial records. Other details to keep in their records include corporate tax activity and minutes from meetings. By keeping clear and separate records, the company can reduce the likelihood of abusing corporate assets.

Maintain fiduciary duties to the company: Directors and officers have a duty to be loyal to the business by properly exercising their fiduciary duties. This means they shouldn't use corporate opportunities or assets for personal gain. They should also keep corporate matters confidential.

Have a plan: Having a well-developed business plan is crucial for avoiding errors and liability. The plan should cover issues like the following:

  • Short-term goals
  • Long-term goals
  • Annual performance reviews
  • Tax planning
  • Quarterly and annual company budgets

Address corporate contract procedures: It's important to enforce the procedures for negotiating and signing contracts, such as the following:

  • Making all purchases in the company name
  • Authorizing a party to sign contracts
  • Keeping a separate corporate account

Follow Articles of Incorporation, bylaws, and other documents: If the key individuals in the corporation don't comply with corporate documents, this can expose shareholders and directors to unnecessary liabilities.

Do You Need an Attorney for Corporate Formalities Issues?

If you're starting a corporation, or even if you're already running one, a corporate formalities checklist can help. However, disputes and violations may come up during the course of business. If you run into any issues with corporate formalities, you may want to consult with a business lawyer for guidance. An attorney can help you with your internal business policies and government laws to ensure your compliance.

It takes extra measures to observe corporate formalities, but doing so properly can save the company from paying legal expenses later on.

Formalities may seem like small matters, but they often hold a great deal of significance, especially if you're doing something like running a corporation. Legal experts can advise you if you have any questions or concerns regarding the formalities you're required to follow.

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