Looking Under the Fingerboard and Maintaining Your Business

Whitman Legal Solutions, LLC

Whitman Legal Solutions, LLC

Violins need regular maintenance. Violinists usually change their own strings and clean and polish their instruments, as well as make minor bridge adjustments. Most will not attempt a bow rehair, “cutting” a new bridge[1], or even a sound post[2] adjustment, much less anything involving the varnish or structure of the violin.

Because violins are made of wood, violinists also use some type of humidifying device when the climate is dry. In Washington, DC, I only use a humidifier during the winter heating season, but someone who lives in Arizona might do so year-round.[3]

Despite proper care, humidity and weather changes and the pressure from the strings pressing down on the bridge can still take their toll on a violin. Sometimes the glue on seams loosens and the seams open or small cracks form or sound posts need to be adjusted or replaced.

Open seams and misplaced sound posts are noticeable due to sound, but it is good also to inspect and clean the violin and fingerboard regularly. It was during one of those inspections that I noticed a previous repair on a 200-year-old instrument looked as if the glue might be coming loose.

Before I got the violin to the luthier[4], we experienced wildly fluctuating weather. Over the course of a few days, the temperature changed as much as 50 degrees and went from wind and snow to summer-like weather.

This weather took its toll on the violin. Not only was the seam open as I had suspected, but there was a crack in the top of the violin under the fingerboard in a non-obvious location. The crack was upsetting, but it was caught early enough for a repair to be possible.

Businesses, like violins, also need regular maintenance. What needs to be done may well depend upon the type of business and how many owners and employees it has. However, all businesses need certain routine “maintenance” to remain in good shape.

Remaining in Good Standing

Most fundamental is the need for the business to continue to exist. In most states, that will require filing annual paperwork, frequently called an annual report, with the state Secretary of State. Plus, there usually is an annual fee. The required forms, fees, and government office involved will vary from state to state.

Businesses need to qualify to do business in every state in which the business has a location. Also, businesses must qualify to do business in every state in which they conduct business. The meaning of “doing business” under the law can be complicated. Before accepting customers in another state, a business should consult with its attorney whether qualification in that other state is necessary.

Failure to qualify to do business in a state when required to do so usually results in penalties. Sometimes the penalties are financial. A business that is not qualified to do business in a state may not sue to collect payments in that state’s courts. Some states will not allow a business that is not qualified to do business in that state to defend lawsuits in that state’s courts.

Also, most states require qualification as a prerequisite to filing a tax return in the state. Not filing required state tax returns results in financial penalties. Not filing also can result in more serious consequences, including possible criminal charges.

In addition to qualifying in the necessary states, it is important that the business file the required paperwork in each state in which the business is qualified. Failure to make all required filings and pay all fees can cause cancellation of the business. If that happens, the owner(s) may have personal liability for business debts or not to be able to defend lawsuits.

Business owners should take note of all required state filings and make any updates to information as necessary to reflect changes in the business.  A business should have calendar reminders of upcoming due dates going to both the individual responsible for those filings and that person’s supervisor. Business maintenance also should be a topic at regular meetings to be sure the business makes all required filings on time.

Ownership and Board Meetings

All corporations and many limited liability companies and partnerships must have regular owner meetings. Corporations and other businesses which have boards also must have regular board meetings. Typically, these meetings must occur at least once a year.

Corporations and many other businesses should have a corporate minute book. This can be a physical notebook or it may electronic. The minute book, of course, includes minutes of all owner and board meetings. The minute book also contains the formation documents, by-laws, and partnership or limited liability company agreement. Sometimes minute books also include owner lists and copies of critical business contracts approved by the owner(s) or board.

For a small business where owners and board members communicate regularly, having a formal meeting and keeping a minute book may seem unnecessary or even silly. However, failure to have meetings or formal business records can be a factor when a creditor wants to pierce the corporate veil and hold business owners personally responsible for business debt.

Further, auditors will require that a business produce its minute book(s). Business lenders may request copies of those items also. Some lenders even require that the business maintain proper minute books.

Approval of Officers and Decisions

Many times, businesses decide to promote an individual to an officer position, but the only thing they do to make that promotion effective is order the person new business cards. That person and others may start signing contracts on behalf of the business with little more than a phone call from the owner telling them to do so.

Such practices are risky for both the business and the individuals involved. Without clear, written guidance regarding the extent of each individual’s authority to sign business documents, the business could find itself bound by contacts it does not want. Further, individuals who sign contracts without authority could find themselves personally responsible for the contracts. Individuals who act as officers without owner or board action may find they are not covered by the business’ directors’ and officers’ insurance or officer indemnification provisions in business documents.

Businesses should create a resolution appointing individuals to all officer positions. Likewise, signature authority, including any dollar or other limitations, should be spelled out and adopted by a formal resolution. Corporate by-laws, a partnership agreement or limited liability company agreement may require additional, usually major, decisions to be made via formal vote.

In corporations, these resolutions typically will be approved by the board. Appointment of officers and approval of major decisions in other businesses will depend upon the partnership or limited liability company agreement.

This resolution may be approved at a board or owner meeting. Written minutes from that meeting should include the resolution. For most businesses, the resolution also may be in written form and signed by all required individuals without a formal meeting. The written record of the officer appointment (whether in minutes or a written form) should be maintained in the minute books.

Monitor Core Business Documents for Maintenance

Just as every violin needs regular string changes and every violin bow needs routine rehairing, all businesses need regular state filings, regular meetings, minute books, and business resolutions appointing officers. In addition, just as I checked for open seams on my violin, businesses should inspect their business documents quarterly or annually to see if they need less routine maintenance. Like I found the crack under the fingerboard, a business might find a similar gap in its records.

The areas for inspection will vary depending upon the business, but most businesses should regularly do the following:

  • Review corporate by-laws, partnership agreements, and limited liability company agreements to be sure that the business is complying with them.
  • Make sure that by-law and partnership or limited liability company agreements still meet the business’ needs. If not, the owners can update them.
  • When making state annual filings, be sure that all information on file with the state is correct. In particular, confirm that the business’ resident agent in each state is someone the business wants to be responsible for its important notices and is still at the address indicated. Many small businesses will appoint an employee as their resident agent and not make a change even though the employee may resign or move.
  • Review minute books to confirm that there are resolutions appointing all individuals who are officers.
  • Review minute books to confirm that those who are actually signing documents or checks for the business have written authority to do so.
  • Review the document retention policy. Confirm practices are in place to keep important documents. Destroy documents where required by the policy.
  • Review financial recordkeeping with the business’ accountant. Be sure that business finances are maintained separately from those of the owner and other businesses.

Like violin maintenance, there are things which the business should do on an ongoing basis, as well as maintenance which should be done seasonally. Just as the crack in the violin could have been devastating had it not been caught early, failure to engage in a routine business maintenance can have catastrophic results.

[1] The bridge is a carved wood piece which sits on top of the violin and holds the strings up. The bridge must be “cut” or carved to fit the specific violin and must be properly placed to optimize the violin’s sound. Bridges are not glued to the violin, so they can move or even fall. Since bridges are wood, they, too, must be maintained, as bridges tend to warp due to the pressure put on them by the strings.

[2] The sound post looks like a wooden dowel inside of the violin. Like the bridge, it is custom-made for a specific violin. The sound post is not glued in place and has no structural purpose. The sound post is, however, critical to the violin’s sound. Even a fraction of a millimeter difference in position or thickness of the sound post can make a huge difference in a violin’s sound.

[3] Some violinists have both “winter” and “summer” bridges for their instruments due to humidity changes, which make their instruments swell. There also are different rosins for bow hair for winter and summer, because the softness of the rosin can be important in humid or dry weather. On one of my instruments, I use a higher tension of string in humid summer weather than I do in the winter.

[4] A luthier, from the French word for lute, is a person who makes or repairs string instruments.

This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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