In this transcript from a video by Andy Gale from Gale & Vallance in Orange County, we explore legal solutions for incorrect incorporation filings and why they are critical for CPAs and business owners in California. Andy explains the dangers of faulty filings, the risks they pose for clients, and the steps attorneys can take to correct them.

To learn more about legal solutions for incorrect incorporation filings and how to protect your business, check out our detailed article on corporate compliance in California.

Please note, this video does not constitute legal advice. We recommend contacting an attorney regarding your specific situation.

00:00:08 – The Client’s Problem

Here’s the client’s problem.
He wants to bring an investor into his corporation.
The investor says, “Before I invest in your corporation, I need to review all of the corporate documents that you created when you formed the company, and I need to see all of the corporate minutes that should have been done every year.
Once I’ve had a chance to review all of those documents, then I’ll make my investment.”

The problem is that the client had his CPA form the corporation, rather than a lawyer.
And the CPA elected not to draft any of these documents, because he felt that it was only important as internal operational material and wouldn’t matter for any other purpose.
And consequently, he now does not have the documents that he needs in order to get an investment.

What does he do?

00:01:03 – A Call with a Client

(Music)

I had a telephone call with a client yesterday.
He and his partner were looking into bringing in a new investor.
One of the challenges that he and his partner were facing was that the new investor wanted to look at all of their corporate records.

I told him that will be no problem.
All he needed to do was contact the attorney that had formed the corporation.
Every attorney will do a certain amount of work to make sure that all of the formalities of the formation process have been met.
And part of that would be the drafting of the articles of incorporation, the bylaws, minutes of the incorporator, shareholders, board of directors, share ledgers, share certificates, all of these kinds of documents.

So I said, well the easiest solution to this problem is just call the lawyer who did the formation and they will provide you with a copy of the documents.

And he said, well that’s the problem.
It wasn’t my lawyer that did the formation.
It was my CPA.
And when I asked my CPA whether or not we needed any of these documents, he said, “Don’t worry about it at all. Those are documents that you just need for internal operation of the company. But otherwise, they’re not important.”

WRONG. Completely wrong.
And they’ve now found out that this was completely wrong information, because the new person that wanted to invest in the company will not put their money into the company without having all of these documents done.

00:02:33 – Why Corporate Records Matter

So the problem is that these guys need an investment.
They can’t get an investment because the person who is going to be the investor requires all of the corporate formalities to have been met during the operation and the formation of the company.

So when I told the client that I don’t think he’d been given good advice with regard to the necessity of having a properly formed corporation that contained all of the correct formation documents, he said, “You know what, I just didn’t think that the information I got made any sense to me.

And the reason it didn’t make any sense to me was because I had previously been part of a startup.
And when we did that startup, all of the lawyers that were involved in that engagement, in that process made sure we had properly documented all of the things that happened during the formation process.
They insisted that we crossed all of our T’s and dotted all of our I’s, so when I was told by the CPA that it was not necessary, it just didn’t sound right to me.

Unfortunately now, we’ve found out that that was in fact the case.
And now I need to fix the problem.

00:03:36 – Restating the Issue

Here’s the client’s problem.
He wants to bring an investor into his corporation, the investor says before I invest in your corporation, I need to review all of the corporate documents that you created when you formed the company, and I need to see all of the corporate minutes that should have been done every year.
Once I’ve had a chance to review all of those documents, then I’ll make my investment.

00:03:56 – The Solution

The solution to the problem of course is that the client is now going to have to take the time and energy to go back and essentially recreate those corporate records that are missing.

Now, he cannot phony up records, he cannot lie about what actually happened in the life of the corporation, he can’t exaggerate the financial condition of the company.
But what he can do, he can go back and memorialize all of those things that actually did occur in the life of the corporation and put it together in such a way that all of the documents are complete and will satisfy the scrutiny of an investor.

So the rule here is that when you form a corporation, make certain you have it formed with someone who knows exactly what they’re doing.
And although CPAs can be experts in the field of preparing tax returns for various business entities, they’re not necessarily the experts that you want in the legal formation of the corporation.

00:04:51 – Call to Action

So if you find yourself in a situation, where perhaps a CPA has formed your corporation and/or you formed the corporation yourself, and you have not completed all of the documentation and you now find yourself in a position where you do need that documentation, please give us a call.

We can help you go back, reconstruct the missing records, put it together, so that it looks like a complete corporation, so that it is a complete corporation, and make sure that any kind of scrutiny that you’re going to subsequently face, you will be able to meet that scrutiny and do it an above board, straightforward businesslike fashion.

00:05:24 – Closing

My name is Andy Gale.
I’m a small business attorney.
If you need help, please give me a call.

Conclusion

Legal Solutions for Incorrect Incorporation Filings

Incorrect incorporation filings can expose businesses to compliance issues, tax risks, and liability problems. By working with a knowledgeable attorney, CPAs and business owners can correct mistakes before they become costly. If you or your clients are dealing with faulty incorporation documents, exploring legal solutions for incorrect incorporation filings is the safest way to protect your company and ensure long-term compliance.