Today a client asked me to comment on a communication received from a CFP who has a "corporate recordkeeping program."  The point of the program was to keep intact the "corporate veil" of corporations and limited liability companies.  The corporate veil is the separation between the company and the owners that protects the owners' assets from being seized to pay the company's debts.  When that separation falls and the owners must use personal assets to pay corporate debts, we call that piercing the corporate veil.

 The CFP claimed that courts pierce the corporate veil and seize the owners' personal assets from 31% to 45% of the time.  The CFP didn't source that information, so I don't know where it came from.  I do know that Professor David Hoffman notes in this blog post  that he found a much smaller number, actually about 6% of court-ordered veil piercing decisions. 

The CFP attributed the rate of success in piercing the corporate veil to the failure of the owners to separate the company's activites and finances from those of the owners.  On that I would agree.  However, the CFP went on to say that the "primary driver" was inadequate corporate records.  On that I must disagree. 

On a purely selfish basis, it would be in my interest to lead clients to believe that if they don't pay my firm to maintain or review their corporate records then they are more likely to lose their personal assets.  However, I haven't found from research or personal experience that the failure to maintain appropriate corporate records, by itself, will result in piercing the corporate veil.  Rather, the failure to maintain corporate records is usually only a symptom of that larger problem noted by the CFP:  the failure to separate the company from its owners.   The absence of up-to-date corporate records is usually not enough to pierce the veil where the company operates separately from the owners, with separate books, no personal guarantees from the owners (this one's important!), payment of company debts before distributions of cash to the owners, etc.

In fact, even the failure to separate the entity from its owners may not be as important as some seem to think.  Professor Hoffman also has another blog post in which he found that the most common reason the veil was pierced was that the company had been undercapitalized.  Claims that the corporation was a sham or a front for the owners' personal activities were much less likely to win on the merits.  Note that failure to keep corporate records wasn't even in the running.   I think this is confirmed by this site maintained by the Citizen Media Law Project.

Don't get me wrong. I still think corporate records are important.  They keep you from having "some 'splaining to do" if the IRS audits you and they show your company to be well-managed and thus worth more when you try to sell your business.  However, I can't honestly use scare tactics about losing everything you own in order to convince people to use my services to keep their records up-to-date.  Instead, I prefer to use the corporate records as an excuse to meet together with clients at least once a year so we can check-in, make sure all of their ducks are in a row and that they are poised to achieve next year's goals.  The annual minutes and other records are just a nice byproduct of that annual check-up. 

In all, I think the reason to continue to work with your attorney, accountant, and other advisors isn't to avoid missing that "one document" that makes or breaks your life. Rather, those relationships help you to get the benefit of their experience and expertise with many business owners so you don't have to keep reinventing the wheel.