Monday, January 24, 2011

Don’t be Fooled by Solicitations from Companies that Will “File” Your Annual Corporate Minutes (for a fee, of course)

After receiving a suspicious-looking solicitation on “official” letterhead bearing a Sacramento address, clients often ask:

“I got a form in the mail entitled “Disclosure Statement: Department of Annual Business Minutes (DOBM)” or “Annual Disclosure Statement” (or something similar), from a Sacramento address. It says I must fill it out and return it with a check for $125. Is this a scam? Do I need to do anything with my minutes on a yearly basis?”
Generally speaking, these are scams. I, myself, receive these solicitations several times a year. There are many companies out there that get an address somewhere in Sacramento (sometimes it’s just a mailbox store), and send envelopes with logos that somewhat resemble the official seal of the State of California, or they may look like they are from the Secretary of State’s office or the Department of Corporations. They generally tell you of some ill that will befall you and your business of you do not immediately sign the form and send it back with anywhere from $115 to $150 for annual minutes. You may receive such a solicitation within a few of weeks of filing your Articles of Incorporation.

Articles of Incorporation are public records, and these companies simply purchase lists of newly formed corporations. With so many small businesses incorporating every day, it’s like shooting fish in a barrel for them, and unfortunately their scare tactics work on a lot of people.

Here’s the real deal: Your corporation must have an annual meeting of the shareholders and an annual meeting of the directors. Meeting requirements are set forth in the Corporations Code and also in your corporation’s bylaws. These “meetings” do not have to be at a fancy conference location, and if your board of directors consists of just one person, you won’t exactly be “meeting” with yourself. But the meetings do have to be documented with minutes in your corporate record book. The bylaws further specify the requirements for the date and time of both the annual meeting of shareholders and the annual meeting of directors. In small corporations, these are usually handled as “paper meetings,” that is, minutes are generated documenting major decisions made that affect the corporation, but there is no actual “meeting” where folks sit down and conduct a discussion, etc. Failure to maintain an up to date corporate binder with all of the documents required in the Corporations Code and your bylaws (including minutes of these annual meetings) could potentially cause you to lose your corporate liability protection, and you may also be required to produce such documentation in the event you are ever audited by the tax authorities.

You can find an attorney or legal document assistant to prepare the necessary documents. However, these are all things you can do yourself, too. There are some easy-to-understand self-help books out there, like Nolo’s book on corporate resolutions. The Secretary of State will mail you a blank SOI form you can fill out and send back. But if you don’t want to hassle with it, we’re here to help.

Above all else, please understand that any solicitation you receive is likely a scam. Minutes do not get filed with the Secretary of State’s office; the only thing filed with the Secretary is the annual Statement of Information. Odds are, you will receive these bulk-mailed solicitations at various times of the year, often when you are nowhere near the annual meeting date established in your bylaws. Whatever services they are trying to sell you most likely won’t include the SOI, may not include the necessary notice waivers, and may not include the minutes of both meetings (shareholders and directors) as required in your bylaws.

Bottom line…buyer beware!

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