If you are a shareholder in a small business corporation, you likely have at least a vague recollection that establishing and maintaining your corporation require compliance in a number of different formalities: First, you needed to file Articles of Incorporation. Then, you needed bylaws and stock certificates. Then, you needed a shareholder agreement. Now, you need to submit an annual filing (in most jurisdictions), and you need to keep minutes reflecting key corporate decisions and activities.
No One Really Keeps Minutes, Do They?
Annual meeting minutes are perhaps the single most-overlooked aspect of corporate compliance for small, privately held companies. This is true despite their importance for a variety of different reasons. Don’t believe that corporations really keep minutes? Check the public filings of any corporation registered with the Securities and Exchange Commission (SEC), and you are bound to find a host of filings containing meeting minutes for the corporation’s activities. If large, public companies see the value in preparing and maintaining meeting minutes, shouldn’t you?
The reasons why all corporations need to prepare and maintain meeting minutes include the following:
1. Liability Protection
One of the key benefits of operating as a corporation is to protect shareholders from personal liability, and one of the keys to securing this protection is to observe the mandatory corporate formalities. This includes preparing meeting minutes. This is more than just formality for formality’s sake. The idea behind the corporate form is that the corporation is a separate “entity” from its shareholders, and to maintain this separation (to prevent the shareholders from simply operating under the guise of a corporate shell), you need to demonstrate that appropriate steps are being taken to appoint officers and directors, consider shareholder input, and otherwise make decisions at the corporate level.
2. Funding
The second reason to prepare and maintain meeting minutes is funding. If you want it, you’ll need to observe the corporate formalities. Potential investors will want to see that you have your ducks in a row, and that your corporation has been set up appropriately so that they can make a sound investment. If you call yourself the company’s CEO but there isn’t any documentation to support it, this isn’t going to look good when venture capital firms and angel investors start doing their due diligence.
3. Dispute Avoidance
Who’s in charge? Was a decision you made official? Did you make it before or after that other decision? When you and your corporation’s co-owners start questioning one another (which will happen), you will sure be glad that you wrote things down.
4. Legal Compliance
Don’t forget, in many jurisdictions, keeping annual meeting minutes is a legal requirement. This relates back to the issues discussed above. Failure to observe the requisite formalities can lead to loss of shareholders’ limited liability, and potential funding sources are not going to look favorably upon a company that has not kept up with its legal compliance.
5. Taxes
Failure to keep meeting minutes can potentially have tax implications as well. Did you elect for S-corporation tax treatment? If so, is that reflected in the corporate minutes? If you choose to maintain C-corporation tax treatment, the taxing authorities may not recognize your corporation for tax purposes if your corporate charter has been forfeited due to failure to follow the necessary state compliance requirements.
Okay, So What Do I Need to Do?
Alright, so now that you understand why keeping corporate meeting minutes is important, how do you keep minutes that will meet the objectives outlined above? The best answer, of course, is to have your minutes prepared by your attorney. An experienced corporate attorney will be able to cost-effectively prepare minutes that meet your needs, while also helping ensure that you have not overlooked any issues that either (i) need to be recorded, or (ii) need to be addressed in order to mitigate your corporation’s and its officers’, directors’, and shareholders’ potential exposure.
That said, if you are intent on preparing your corporation’s annual meeting minutes on your own, here are five basic tips to keep in mind:
1. Call a Meeting
First, in order to prepare annual meeting minutes, you actually need to call an annual meeting. Your corporate bylaws should include provisions for calling meetings of the shareholders and the board of directors, and you will need to comply with the meeting notice provisions as outlined in your corporation’s governing documentation.
2. Be Accurate
Your meeting minutes should reflect the events of the meeting, as well as any key decisions made. This could include:
- Election (or re-election) of officers and directors
- Compensation increases
- Stock issuances
- Revisions to the corporation’s bylaws
- Decisions to enter into major transactions or establish new lines of credit
Keep in mind, while our discussion here is focused on annual meeting minutes, for certain corporate decisions, you may need to call special meetings which will require preparation of minutes as well.
3. Be Thorough
While you do not need to record individual shareholders’ or directors’ statements word-for-word, you do want your meeting minutes to be thorough. If someone has a question down the line, the more detail you have in your minutes, the better able you will be to recollect when, why, and how certain decisions were made. Some of the types of details you will typically see in corporate meeting minutes include:
- Date and time of the meeting
- Shareholder(s) or director(s) present
- The procedures followed during the meeting (reading of the agenda, votes taken, motions proposed, and objections asserted)
- The results of any votes
- Any key decisions made
Once the meeting is over, the corporation’s secretary should sign the minutes and store them in the company’s corporate minute book (more on this below).
4. Be Consistent
Since meeting minutes are, to a certain extent, a matter of formality, it helps to be consistent in terms of the format you use. While you can certainly look at forms online for examples, there is no one universal standard; and, from a legal perspective, things like typeface and font size do not matter.
5. Keep a Corporate Minute Book
Once you prepare your annual meeting minutes, you need to keep them in a safe place, and preferably with the minutes from your corporation’s past meetings. In fact, it can be a good idea to put together a corporate minute book where you store all of your company’s meeting minutes and other important documentation. This would typically include things like your company’s Certificate of Incorporation, bylaws, bylaw amendments, lists of officers and directors, shareholder agreements, copies of share certificates, and your company’s tax identification number. It is fine to store electronic copies instead of a paper file – as long as you keep them backed up and secured.
Schedule a Consultation at Jiah Kim & Associates
If you would like assistance with preparing your corporation’s annual meeting minutes and maintaining a compliance corporate minute book, contact Jiah Kim & Associates to discuss your needs. We work closely with our clients, getting to know their businesses so that we can provide practical, insightful guidance tailored to their unique circumstances. To get started with a confidential initial consultation, call us at (646) 389-5065 or get in touch online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.