What is a requirement for shareholder agreements to eliminate corporate formalities in closely-held corporations?

In closely-held corporations, shareholder agreements can indeed serve the purpose of eliminating some corporate formalities typically required by state law. The chosen answer correctly identifies that a unanimous shareholder election, which is thoroughly documented in official corporate documents, is necessary for this to occur.

When all shareholders unanimously agree, they can effectively make decisions that set aside certain formalities, such as holding regular meetings or maintaining detailed minutes, which are usually mandated for larger corporations. This flexibility is particularly significant in closely-held corporations where all parties often closely collaborate and agree on the direction of the business.

The importance of documentation cannot be overstated; having a unanimous decision recorded in the official documents creates a clear legal basis for the actions taken, which helps protect the shareholders and the corporation from future disputes or claims of improper conduct. This level of agreement ensures that all shareholders are on the same page and are actively participating in governance decisions, reinforcing the notion of collective control typical of closely held entities.

By contrast, options that mention majority shareholder consent or specific percentages do not provide the same security or clarity as a unanimous decision. Similarly, requiring internal audits annually does not relate to the formalities and governance structure specifically enabled by shareholder agreements in closely-held corporations.