The corporation laws in most states provide that a corporation shall hold an annual shareholders meeting. However, failure to hold an annual meeting does not invalidate corporate actions or business. In fact, there appears to be no real penalty for the failure to hold an annual meeting. Beyond requiring an annual meeting, the corporation laws do not state how often or for what purposes a meeting must be held. That is a decision for the directors and officers of a corporation to make.
Generally speaking, meetings should be held to decide important or substantive questions or issues outside or beyond the corporation’s regular day-to-day business. If a corporation is sued and the question of limited liability protection for the shareholders is raised, then the failure to hold corporate meetings may be one factor among others, which a court will look at to determine if the corporation is being operated as a separate legal entity under the law.
My experience is that failure to hold corporate meetings will probably not be sufficient for the court to disregard the corporate identity and hold the shareholders personally liable. However, holding meetings and preparing minutes will give the shareholders and directors a stronger argument that they have been observing corporate formalities and have been operating the corporation as a separate legal entity.
Minutes are also crucial in the event of disputes between shareholders or officers and directors. They provide necessary evidence of what the parties intended with respect to various corporate actions. A corporation can also satisfy this requirement by using a Consent in Lieu of Meeting document instead of having an actual meeting.
Our recommendation to the shareholders of a small corporation is that they hold their annual shareholder and annual director meetings each year and make sure minutes are prepared for each meeting. If they have other business during the year, which requires debate and a vote, they should hold a special meeting as needed. Other business can also be conducted by using the Consent in Lieu of Meeting form discussed in §10.3. Having minutes (or a Consent in Lieu of Meeting form) for the annual meetings and one or two other meetings during the year proves that you are making a reasonable faith effort to comply with the corporate formalities.