Magazine article ARMA Records Management Quarterly

Legal Responsibility for Records in a Corporation

Magazine article ARMA Records Management Quarterly

Legal Responsibility for Records in a Corporation

Article excerpt

NOTICE: This article contains information related to sensitive and important legal issues. No section of this article should be construed as providing legal advice. All legal decisions related to records and information management should be reviewed by competent legal counsel.

Much has been written about a records manager's responsibility for the records within an organization. As a practical matter, while the records manager may have operational or day-to-day responsibility, the legal responsibility rests with those responsible for the organization as a whole.

In government, the head of the government agency is generally responsible by law to maintain the records of the agency. In the private sector, the partners of a partnership and the owner of a sole proprietorship will be responsible. The responsibility in both of these areas will typically be personal in nature. Partners and owners may be subject to personal fines and penalties should they fail to fulfill their legal responsibilities.

This article addresses the legal responsibilities for records in a corporation. Due to the special relationship of the shareholders, board of directors, and officers, some may be confused regarding exactly who is "in charge."

THE LEGAL STRUCTURE OF A CORPORATION

A corporation is a legal entity typically created under state (and sometimes, federal) law that is treated as an "artificial person" or single entity for legal purposes. A corporation is owned by the shareholders. The shareholders, contrary to other private entities, retain an identity separate from the corporation itself.

A corporation may conduct business, enter into contracts, initiate lawsuits, and perform other transactions in its own name. One unique feature of a corporation is that the shareholders, unlike other owners of private companies, will be shielded from personal liability for normal acts performed by the corporation. However, shareholders who are employees, directors or officers of the corporation will not be shielded from personal liability.

Besides the law of incorporation, corporations will be governed by the terms stated in their Articles of Incorporation. This "charter" from the shareholders establishes the guidelines under which the corporation will operate. The "bylaws" provide additional detail regarding responsibility of officers selected by the board of directors and specifics regarding board and shareholder meetings.

Most articles of incorporation adopt the state law of incorporation to govern the operation of the corporation, especially in those areas not addressed by the articles. The articles also may not contradict the law. When the corporation does business in another state, it must also comply with the legal requirements for "foreign corporations."

At an annual meeting, the shareholders elect a board of directors to develop additional policies consistent with the articles of incorporation and the bylaws and to operate the corporation on a daily basis. The board of directors then selects officers for the corporation--president, vice president, treasurer, secretary, etc.--to be responsible for the major day-to-day activities.

LEGAL STATUS OF THE BOARD OF DIRECTORS AND OFFICERS

The directors and officers of a corporation are fiduciaries for both the corporation and its shareholders. They operate the corporation in the best interests of the shareholders, rather than for their own personal gain.

As fiduciaries, directors and officers will be charged with knowledge of the operations of the organization. The law presumes that board members possess knowledge of all transactions of the corporation. The law also presumes that officers possess knowledge related to their specific areas of responsibility.

The legal responsibility of directors and officers is personal in nature. Although a corporation acts in its own name, the "corporate shield" does not protect directors and officers from willful or outrageous failures in their fiduciary responsibility related to legal requirements of the corporation. …

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