Many entrepreneurs will organize their business into a limited liability company (LLC) or similar entity to obtain limited liability protections. Lawyers counseling these business owners often recommend that their clients observe corporate formalities by following such practices as conducting regular corporate meetings, taking minutes of those meetings, and approving resolutions of important actions taken by the LLC. Maintaining limited liability is an important reason for a company to follow corporate formalities and maintain formal records, but there are other important reasons to maintain these practices that are even more basic.
In the case Kelegian v. Mgrdichian (1995) 33 Cal. App. 4th 982, a California Court of Appeal quoted the trial judge’s wise words: