Failing to maintain proper corporate records can bring severe penalties, both civil and criminal.

CIVIL PENALTIES (click for more information)

  • Corporations are liable for every day they neglect or refuse to keep accurate books of account.
  • If any documents are knowingly false, the corporation is liable for all damages suffered by the corporation or any third party who relied on the documents.
  • Officers and directors are subject to penalties for unreasonably failing to enter any transfer of shares into the books.

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CRIMINAL PENALTIES (click for more information)

  • It is a felony to make false statements affecting the value of the shares or to refuse to make any required book entry.
  • Anyone who falsifies books can be fined $1,000 or sent to prison for 1 year.
  • Anyone who exhibits false papers to public officials is subject to imprisonment for up to 1 year.
  • It is a misdemeanor to use someone’s name in any documents without authorization.

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PERSONAL LIABILITY AND TAX CONSEQUENCES

Failing to keep accurate records can also bring other adverse consequences. If it appears that the corporate existence has been ignored, the courts may disregard it also, bringing personal liability to the shareholders for corporate debts.

In addition, failure to document important tax decisions can cause the IRS to deny tax benefits and to tax you as an individual, which might result in a higher rate than the corporation would have had.


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THE FOREGOING IS ONLY A GENERAL SUMMARY OF CALIFORNIA CORPORATIONS LAW OR A PORTION THEREOF, AND DOES NOT PURPORT TO BE AN ACCURATE OR COMPLETE STATEMENT OF THE LAW APPLICABLE TO CORPORATIONS IN CALIFORNIA. IT DOES NOT CONSTITUTE A LEGAL OPINION. INDIVIDUAL SITUATIONS MAY VARY. FOR AN ACCURATE LEGAL OPINION, ALWAYS CONSULT AN ATTORNEY.