Most business owners should be able to keep most of their own corporate minutes. Minutes are official records of corporate matters acted upon in a corporate meeting. Knowing a few corporate rules may simplify the process of keeping corporate minutes.
The first basic rule is that state corporation law and the corporation's own bylaws set the rules for holding a valid corporate meeting and taking valid corporate actions.
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 the same, but the specific requirements will vary from state to state and may also be varied in the corporation's bylaws.
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.
However, when there are a number of shareholders or directors and they disagree, following the rules may become critically important.
Under California law, an annual meeting of shareholders is required for each corporation for the purpose of electing directors. Most corporate bylaws require at least annual meetings of the shareholders and of the board of directors.
Most corporate actions are actions to be taken by the board of directors, not the shareholders. So even if a board of directors' meeting is not specifically required by law, it is important that meetings of the board of directors be held at least annually. An active corporation should plan to have several meetings throughout the year.
The following are some simple rules which should provide assistance in planning corporate meetings and corporate minutes:
(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.
(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.
(5) Remember to keep records of meetings of both the shareholders and the board of directors.
If the same people are both the shareholders and the directors, a combined meeting may be held, so that one need not worry about which actions are shareholder actions and which are actions for the board of directors.
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.
Most actions related to the operation of the business are actions to be taken by the board of directors. This is the real power behind a corporation. Once a board of directors is elected, each director normally holds his or her seat on the board until the next election of directors. Each director has 1 vote. Even if one individual holds 90% of the stock in a corporation, when he or she sits on the board, he or she has only 1 vote and may be outvoted by other directors.
While a shareholder with a large percentage ownership of the stock may have the ability to change directors, he or she has to wait until the next election of directors to do so. In the meantime, he or she may be outvoted in votes of the board of directors.
Of course, in a small corporation, and in other areas of real life, charisma, bully power, financial control, and other methods of exerting influence may affect how things are really done.
(6) If shareholders and directors are different people, recording the minutes of the shareholders meeting and the board of directors meeting separately may be helpful in establishing that each meeting was properly called, was attended by a quorum, and that the actions taken were properly voted on by either the shareholders or the board of directors.
(7) A quorum must be present to hold a valid meeting. 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 entitled to vote. Have the minutes state who was present at the meeting and who was absent. This helps avoid disputes about whether there was a quorum.
(8) Have the minutes signed by the Secretary of the corporation or other person properly authorized in accordance with corporate bylaws or state corporation law.
What actions should be covered in the minutes?
It is possible to have lengthy meetings and actually discuss many issues. Often it is not desirable to record in minutes all the topics discussed.
While resolutions passed do need to be included in minutes, the business owners need to make a judgment call on whether to record all of their discussions. Consider the following:
Resolutions are only necessary to document corporate actions for which proof of authorization is necessary, such as election of directors by the shareholders, approval by the shareholders of actions by the directors, and election of officers by the directors.
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 have resolutions passed to document financial or business decisions that might be questioned by other shareholders, spouses, and others. 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 financial matters 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.
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.
© 1997 Mary Hanson. All rights reserved.