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Points of Business Interest – February 2005

February 2005
Points of Business Interest

New Rules on Supplying Information on Employees

Public offices, such as the Illinois Department of Public Aid, obtain location information from employers, labor unions, and others about putative fathers and other non-custodial parents in order to establish paternity or to establish and enforce or modify an existing child support obligation. Many employers have received inquiries in the past concerning employees, but there is now a $100 per day penalty for failure to respond.

Preparing and Maintaining Records


A growing trend is for an individual or small group of individuals to incorporate a business themselves or with the assistance of an accountant. While accountants perform essential functions for any business, and any individual can read portions of the Business Corporation Act, it is essential that an attorney be involved in the preparation of documents to incorporate and maintain the business in order to ensure that the protections from personal liability and other advantages of incorporating are obtained and maintained. Specifically, it is essential that, once articles of incorporation are obtained, the incorporation have organizational meetings of its incorporators (if applicable), shareholders and directors, in order to adopt by-laws, which are the “constitution” of the corporation, establishing the rules by which it will operate. In addition, documentation must be prepared concerning the assets contributed to the corporation by its shareholders and stock certificates documenting the ownership of the stock. The initially issued shares should be noted as Section 1224 shares to maximize the tax benefit in the event that the business does not succeed, and the decision needs to be made whether the corporation will elect S-status for federal tax purposes. In addition, a federal employer identification number needs to be obtained and insurance policies obtained. If more than one shareholder is involved, a buy-sell and/or redemption agreement should be seriously considered, in order to provide a market for the shares in the event of the death, disability or departure of a shareholder and to ensure that the corporation does not have a very disgruntled shareholder if one of the shareholders leaves the corporation.

Each year, the corporation should have annual meetings of the shareholders and directors, or sign informal actions in lieu of those meetings, in order to properly document the ongoing affairs of the corporation. Minutes of these meetings, or informal actions in lieu of those meetings, serve as a collective memory for the corporation. They should be retained in the corporate book with the articles, bylaws and other important corporate documents. All shareholders by law have the right to review these documents.


By law, a limited liability company must keep at its principle place of business or other locations specified in the operating agreement, its articles of organization, a list of the full name and last known address of each member, setting forth the amount of cash each member has contributed, a description and statement of the agreed value of the other property or services each member contributed or has agreed to contribute in the future, and the date on which each person or entity became a member. In addition, the records must include executed copies of any powers of attorney under which any articles, applications or certificates have been executed, copies of the limited liability company’s federal, state and local income tax returns and reports for the three most recent years, if any, copies of the then effective written operating agreement and any amendments thereto and of any financial statements of the limited liability company for the three most recent years, if any.

All these documents may be inspected and copied at the request and expense of any member or legal representative of a deceased or disabled member during ordinary business hours.

The Importance of Being Earnest.

It is essential that these formalities be followed. Normally, someone enters into a business with the idea of conducting that business, not being a slave to record keeping. However, in the case of a corporation, it can be argued that the corporate veil can be pierced, meaning that the corporate insulation from liability to shareholders can be lost, if in the event that failure of the corporation to keep proper records, keep its financial accounting separate from that of the shareholders or other principles, have adequate capitalization and other factors. It is also essential because if a corporation never bothers to move beyond the articles of incorporation, no one has been authorized to act on its behalf, either as a director or officer, the duties and authority of the officers and directors have not been properly established and indemnification protection for officers and directors may be lacking.