An often overlooked matter by small business owners are the company’s corporate minutes. It is vital that all corporations keep adequate documentation in the form of minutes of its member, shareholder and director or manager meetings. In many jurisdictions, including Arizona, the absence of proper records may be cause potential liability for the shareholders of a corporation, particularly in cases where the shareholders are directors themselves, or where they have close relationships to the corporate directors. The following are some frequently asked questions about corporate minutes:
1) What types of matters are usually included in corporate minutes?
Most jurisdictions require corporations to hold annual shareholder’s meetings to elect directors. Also, the bylaws of most corporations also require their board of directors to have an annual meeting. Although the board may delegate day-to-day operation of the business, the following actions normally require approval by the board of directors:
- Electing officers of the corporation
- Adopting business policies and plans,
- Designating committees and allocating authority to them
- Issuing and selling stock
- Approving the sale, lease, conveyance, exchange, transfer, or other disposition of all or substantially all corporate property and assets
- Approving mergers and reorganizations
- Approving the adoption of pension, profit-sharing, other employee benefit plans and stock-option plans
- Approving corporate borrowing and loans
- Entering into joint ventures.
The board generally should also approve the following types of transactions:
- Designating corporate bank accounts and authorized signatories
- Changing an officer’s compensation (unless this has been expressly delegated)
- Entering into a major lease of premises
- Entering into any other major contractual agreement or venture
2) What if my company has informal meetings?
May companies, small corporations in particular often have informal “meetings” where these matters are decided. If you are on of these such companies, it is important to subsequently prepare meeting minutes or unanimous written consents (signed by all the directors in lieu of a meeting) that approve the actions. These type of meetings are perfectly acceptable, the meeting should just be documented in your company records.
3) Why should I have corporate minutes?
The single most important reason to keep corporate minutes is to ensure you liability protection you desired when you created your company. One way people try to assign personally responsibility to company owners is to establish that the company hasn’t properly kept corporate minutes. While this is not determinative it is some of the strongest elements to assign personal responsibility to company owners.
Additionally, corporate minutes establish the background record to support business growth and equipment upgrade or replacement.
The minute book also leaves a trail that enables owners to look back at the decisions and transactions of a corporation and determine effective dates for tax purposes.
4) What do I do if I haven’t done minutes in a long time?
First, it is never too late to start keeping your corporate minutes. So the most important thing to do is simply start keeping minutes and document your actions going forward. It is better late than never.
In regard to prior actions, you can not go back in time and shouldn’t fabricate, predated minutes to try and pretend you held meetings. That can actually look worse for you if you ever ended up in court. However, at your first meeting you certainly can review the actions you have done since the last time you held a meeting and approve those actions. At least you would have some record of what has occurred to date.
As always, do not take this article as a substitute for the advice of your attorney. The article is meant to provide some basic information not provide you legal advice. For proper legal advice you should consult with a local attorney.