How small is small?
According to the U. S. Small Business Administration, small businesses make up over 99% of all businesses in the country. There are no set in stone rules as to what constitutes a small business. In fact, whether yours is considered a small business is a combination of annual revenues and number of employees and is different industry by industry.
In agriculture, for example, if your gross receipts are greater than $750,000 you are not considered a small business. But for construction, any business with less than $36.5 million in revenue is considered small. Regardless of the government’s definition of a small business, you know what you have.
Are you the buck-stops-here person? Do you fill in for anyone who isn’t able to do their job? You get the picture, and you also know based on your daily activity whether or not you are a small business.
But small or large, there are some basic corporate or business governance issues that every business needs to tend to whether you are Apple or Fred’s Construction. Some of the most basic are annual meetings and minutes of the directors meetings.
Alright, stop laughing now.
I know that most small businesses do not have annual meetings, and they don’t have minutes. Shame on your attorney for not seeing to it that you have met these responsibilities. Even if you are the only owner, officer and director you should document minutes. Aside from your governance responsibilities to do so, there may be a valid financial reason to do so. For example, in many states there has to be more than one officer.
Many small businesses then put a spouse down as the secretary or some other statutory role, and they really don’t do anything or know anything about the business. If that is you, why don’t you actually make your spouse do something? Perhaps prepare and set up the annual meeting?
For this, you can legitimately pay your spouse. How much you can pay is a facts and circumstances test based on the actual services provided. Buy let’s say it is only $10,000 per year. Why wouldn’t you do that and direct 100% of that to a retirement plan?
If you’ve got partners, the most bulletproof way to establish a value for your firm and the buyout that would accompany the death, disability or departure of an owner is to have an outside valuation done every now and then.
This valuation should then be ratified at the company’s annual meeting and then revised each year by the directors. An annual meeting by the directors is adequate to either ratify last year’s valuation or to change that value, either up or down. Then every 5 years or so, a formal valuation would be advised.
This can avoid lawsuits, bad blood or a battle when someone leaves, either voluntarily or not. These issues become even more essential if your business is a family business and your goal is to maintain family harmony.