Bizadvisor.com Legal Services About Mary Hanson Business Articles
California corporation law requires that a corporation hold an annual meeting of shareholders. It is also important to show that your Board of Directors has met and made decisions as proper management of a corporation.
As a result of these legal requirements, and the desire of business owners to make certain that their corporations provide the protections and benefits of being properly maintained, business owners who are corporate shareholders will want to document their meetings with corporate minutes. Corporate minutes are official records of corporate matters acted upon in a corporate meeting.
Each year business owners who have a corporation will want to "do their annual minutes." Although every meeting is supposed to be documented with minutes, a small corporation often documents only the actions taken at the annual meeting.
For corporations with a number of shareholders, this means actually holding a meeting. For corporations whose shareholders are one business person, a married couple, or two people who work together, the annual requirement might be met by documenting the point at which the decision was made to make no changes in the business structure.
Since so little can be regarded as the "annual meeting" or "annual minutes," the standard for such record-keeping often drops to a low level.
Although most business owners should be able to keep most of their own corporate minutes, it is important for a few rules or requirements to be observed.
State corporation law and the corporation's own bylaws set the rules for holding a valid corporate meeting and taking valid corporate actions. Typically, an annual meeting of shareholders is required. In addition, corporate bylaws often require a meeting of the Board of Directors on the same day as that annual meeting. Even if a meeting of the Board of Directors is not required, one should be held. Ultimate corporate authority is held by the Board of Directors, so that proper authorization of corporate activities involves action by the Board of Directors.
Corporate law varies from state to state. The general concepts of properly calling a meeting, giving adequate notice, and adequately recording corporate actions taken are often the same, but the specific requirements will vary from state to state and may also be varied in the corporation's bylaws.
In California, if there is only one shareholder or if all shareholders in a corporation get along and co-operate, a number of alternative methods can be used to meet the legal requirements for valid meetings and appropriately authorized corporate actions. When there are a number of shareholders and there are disagreements among them, following the rules for holding meetings and maintaining minutes of meetings become critically important.
If you are the sole shareholder, the sole director, and the Secretary of the corporation, here is the easy way to keep up your annual meetings:
(1) Determine the date of your meeting. This is usually a PAST date, since there is no need to give yourself notice. Determining what date you met with yourself should not be difficult.
(2) Prepare minutes of the meeting. Treat it as a joint meeting of the Board of Directors and the Shareholders so that you may not make mistakes of holding one meeting but not the other. The joint meeting also makes it difficult to make the mistake of saying that shareholders voted on a matter that in fact requires approval of the Board of Directors.
(3) Have the minutes of the meeting show that the Directors were elected (this is an election by vote of the shareholders). Have the minutes of the meeting show that officers for the next year were elected (this is an action of the Board of Directors).
(4) Sign the minutes of the annual meeting as Secretary of the corporation. Place the minutes with your other annual meeting minutes.
If you and one other person are the sole shareholders, the two directors, and one of you is the Secretary of the corporation, here is the easy way to keep up your annual meetings:
(1) Determine the date of your meeting. This can be a past date if the two of you meet constantly and constantly are confirming the actions that will be reflected in the minutes. Otherwise, have a meeting at which the basic actions are taken.
(2) Both of you sign a waiver of notice, showing that, although no notice was sent, both of you waived the requirement of notice and attended the meeting. If you have two shareholders or two directors, remember that one person alone cannot hold a meeting, because the quorum requirement cannot be met.
(3) Prepare minutes of the meeting. Have the minutes show that both of you were present at the meeting. Treat it as a joint meeting of the Board of Directors and the Shareholders to avoid making the mistake of not holding one meeting or the mistake of having an action approved by Shareholders instead of the Board of Directors or vice versa.
(4) Have the minutes of the meeting show that the Directors were elected (this is an election by vote of the shareholders). Have the minutes of the meeting show that officers for the next year (President, Secretary, and Treasurer) were elected (this is an action of the Board of Directors).
(5) Have the Secretary of the corporation sign the minutes of the annual meeting. Place the minutes with your other annual meeting minutes.
Three or more Shareholders
If you have a number of shareholders and directors, and everybody gets along, you should still take steps as if the individuals DO NOT get along well. One individual could later say that he or she was not in attendance at the meeting or that proper notice was not sent, and claiming that the meeting was therefore not a valid meeting.
(1) You need to satisfy notice requirements in order to have a valid meeting. State corporation laws and bylaws may allow valid meetings without notice if everyone entitled to vote attends the meeting, or if everyone who does not attend signs a "Waiver of Notice."
(2) Check your bylaws and state corporation law to see how meetings can be called. For example, under California corporation law, a meeting of the Board of Directors may be called by the chairman of the board, the president, any vice president, the secretary, or any two directors of the corporation, unless otherwise provided in the articles of incorporation. Notice, quorum, and other requirements must also be complied with.
(3) State law and the bylaws of a corporation will establish how many days notice must be given for different types of meetings and whether the notice must contain information about actions to be taken at that meeting. Send the notice to all individuals entitled to vote. Maintain your proof of notice.
(4) Under some state statutes and corporate bylaws, some corporate actions may be taken without an actual meeting, if all the shareholders or directors will sign a "Consent to Action without Meeting." Check your bylaws and state law to see if any actions can be taken in this manner. Such actions may require unanimous agreement. For a valid meeting, a quorum must be present. State law, the articles of incorporation, and the bylaws of a corporation will establish what a quorum is. It is usually a majority of the shares (or directors) entitled to vote.
(5) Remember to keep records of meetings of both the Shareholders and the Board of Directors and of proof of attendance.
(6) Make clear in minutes what actions were taken (what resolutions passed) and what the vote in favor of each resolution was. Normally a majority vote is required to pass a resolution.
(7) If shareholders and directors are different people, recording the minutes of the Shareholders meeting and the Board of Directors meeting separately is most appropriate.
(8). Have the minutes state who was present at the meeting and who was absent. This helps avoid challenges based on quorum or notice requirements.
(9) Have the minutes signed by the Secretary of the corporation or other person properly authorized in accordance with corporate bylaws or state corporation law. If it is convenient, have all attendees sign the minutes or any other statement of attendance.
What actions should be covered in the minutes?It is possible to have lengthy meetings and actually discuss many issues, and yet make little record of the entire discussion. There is no requirement that your minutes record all the issues brought up or matters discussed.
Your corporate minutes are private, until someone suing you subpoenas the records or the IRS audits your records. You need to consider that your private discussion of business topics could hurt you in such events.
You may wish to document resolutions passed on financial or business decisions that might be questioned by other shareholders or their spouses. If you are afraid a shareholder or director will change his or her mind or later disagree, document that a vote was taken and that he or she voted in favor of the resolution.
You may wish to have resolutions passed to document and justify financial decisions that might be questioned by the IRS. The difficult dilemma is that the resolution may justify and support certain tax treatment and help you in an audit, or it may flag an issue for an auditor and bring attention to a matter you would prefer not to have questioned in an audit.
Proper financial records should provide the support in any audit, so that mention of financial matters in corporate meetings is more likely to add confusion or unnecessary discussion than to provide assistance, especially if the minutes are incorrect.
Of non-financial matters, employment issues should particularly be avoided in corporate minutes. While management is likely to discuss a problem employee at any meeting, recording discussions of employment, problem behavior, or suspicions in corporate records is just creating fodder for employment lawsuits. A careless choice of words, even in referring to "hiring" of independent contractors can give an assist to later employment claims. There is rarely any need for this subject to be covered in corporate minutes.
When there are quite a few shareholders and when shareholders or directors do not get along or can't agree, it becomes more important to properly follow all the corporate rules.
You should consult with a corporate attorney before even calling a meeting, if you believe there will be a lack of co-operation or challenge to actions taken.
Sometimes odd-looking informal records turn out to be the most "bulletproof" of all! Although it is not normal corporate record-keeping procedure, there is no harm in having every shareholder and every director sign the minutes. The beauty of this is it protects against a shareholder or director later claiming they did not attend a meeting.
One of the reasons that I discourage co-ownership of a business is to avoid the difficulties of holding meetings and handling disagreements. When you are the sole owner of a corporation, your main challenge in record-keeping is forcing yourself to maintain a record of meetings and remembering to meet the basic requirements of corporate law.
Copyright 2003 Mary Hanson. All rights reserved.