I have often stressed the need for business people to follow corporate formalities and keep their corporations or limited liability companies up-to-date.  However, the recent decision impacting builders from the Iowa Supreme Court makes it significantly more important for builders and other contractors to do so.

The Iowa Supreme Court ruling essentially says that builders must provide a 15-year implied warranty for their work.  Fifteen years is a long time.  If a builder were to let their corporate entity lapse it could mean the builder would be personally liable if a lawsuit were to occur.  Same for other contractors who are likely to be pulled into lawsuits for work they performed as subcontractors.

Here are some basic tips on how to make sure your corporate entity stays viable:

  1. Hold regular board of director and shareholder meetings in accordance with the bylaws.
  2. Document those meetings with meeting minutes.
  3. Observe corporate formalities (e.g. segregating corporate assets from personal assets; adhering to the bylaws, etc.)
  4. File biennial reports with the Iowa Secretary of State.

Another tip would be that if you intend to dissolve or shut down a corporate entity you should follow the steps to publish notice of the dissolution as set forth in the Iowa Code.  This could allow the dissolved corporate entity to avoid certain claims that are not commenced within three years of the publication of the notice.

As always, be sure to seek the advice of your business lawyer if you have any questions in your specific situation.