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Corporate Meetings: What Every Business Owner and Shareholder Should Know

September 17, 2014

by Matt Smith, Law Clerk and Salene Mazur Kraemer

 

You are a business owner.

You are a shareholder in a business.

You never have shareholder or director meetings.

MISTAKE!!

If you ever want to sell your business, you need proof of what happened in the past.  Memorializing the ongoings of your business with corporate minutes and resolutions and corporate meeting is very important.  A corporate minutebook is essentially a diary of the significant business events that have transpired.

Business owners like me are often so mired in everyday affairs of the business that he or she cannot take the time to meet with other members. We are juggling all the balls in the air, afraid that some may drop. Also, sometimes, we see the “curve but not the road ahead”.

You should know that a future investor or purchaser or lender will demand copies of your corporate minutes or resolutions. Moreover, not only will the minutes provide important documentation of the corporate business, but may serve as tangible evidence of the proceedings in case of dispute later. Perhaps, if an action required shareholder approval, and such approval was never documented, disgruntled shareholders could later challenge that action, giving rise to a “he said, she said situation”. Avoid this and start consciously conducting formal meetings and drafting minutes of such meetings. Often, your business lawyer is present and drafts any necessary resolutions (hint hint: that’s us). Allow us to provide some general info on corporate minutes, meetings, and resolutions.

A legal entity, such as an LLC or other corporation, is formed to help shield a businessperson from individual liability arising from doing business. This legal protection, however, can be pierced if a businessperson does not follow certain formalities (i.e., commingling funds, etc.). One of the most fundamental of these formalities is the corporate meeting.

FOLLOW YOUR OPERATING AGREEMENTS.  The articles of incorporation or operating agreement for a company may mandate annual or quarterly meetings. The articles or operating agreement may also provide for instances in which a “special meeting” is required to approve certain actions, such as: obtaining a loan, issuing equity, and/or replacing a director or officer, etc. The approval or rejection of such actions should be recorded in the “corporate minutes” and separately evidenced by a “corporate resolution.” If an operating agreement so provides, some actions can be approved or rejected without any meeting at all and by written consent. All corporate minutes and corporate resolutions should be safely placed in a special corporate binder.

WHAT TO BRING: Regardless of the meeting type, it is best to insure that certain documents are always available. Insure that a hard copy of the following items are present:

• Articles of Incorporation and any amendments;
• the operating agreement;
• any Corporate Bylaws;
• the minutes of all previous meetings;
• a print out of current information held on file by the state agency with which the corporation is incorporated;
• most recent financial statements

By having a hard copy of these items, it will provide any and all members an opportunity to review those items and to suggest amendments. Member can also be certain that they are obtaining the requisite number of votes for a specific action.

CORPORATE MINUTES. Corporate minutes must not only document the date, time, and location of the meeting, but should also indicate all parties present. The minutes will also provide a record of the topics discussed. The minutes should be signed at the adjournment by all shareholders or members present.

SUGGESTED TOPICS CHECKLIST: At a quarterly or annual meeting, the members should at the least discuss:

• approval of last meeting’s minutes;
• the financial health of the business, possibility of distributions.
• growth plans for the business;
• the sale of any significant assets;
• changes that should be made to the directors or officers of the company;
• material change in the purposes or nature of the Company’s business;
• merger of the Company with another entity;
• sale or lease of any real estate;
• decision to incur certain level of debt;
• contracts, leases, expenses, or other agreements involving more than a certain dollar amount;
• change in tax status or elections of the Company;
• change in the registration or form of the Company;
• acts to dissolve the Company, make an assignment for the benefit of the Company’s creditors, appointment of an examiner or receiver or to file a voluntary petition for Chapter 11 Bankruptcy for the Company;
• significant tax or other debt delinquencies (with secured or unsecured creditors)
• loss of major clients;
• significant outstanding accounts receivables;
• removal or addition of an officer or member of the board of directors; and
• any other operational, human resource, financial, marketing, sales issues that need immediate attention.

The financial statements should show not only the balance sheet of the company, but also the current capital account balance for each shareholder or member. This information is essential not only for discussing the health and future of the business, but in determining whether and in what amount a distribution to a shareholder may be permitted.

To insure that you and your business are maintaining the essential corporate formalities, speak with an attorney to review the corporate records. If you need to recreate minutes from the last few years, contact your business attorney to do so.

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