A question our clients frequently ask is, “What do I need to do to keep my corporate minute book in order?” There is no simple answer, but the following guidelines will help.
Minute Book
A minute book contains the originals of the corporation’s principal documents. These include the articles of incorporation and all amendments, by-laws and all amendments, minutes of the Board of Directors’ first meeting, a copy of the publication affidavit which is required by the Arizona Corporation Commission, a sample of the corporation’s stock certificates showing any special endorsements that might be on the certificates, a copy of any subchapter S election showing evidence of its filing with the Internal Revenue Service, and the minutes of all subsequent meetings of the shareholders and the Board of Directors. Every corporation should maintain a minute book.
It is not necessary to retain copies of contracts, leases or promissory notes in the minute book. But it is essential for the corporation to have a good system for record maintenance and retrieval if such documents are not kept in the corporation’s official minute book.
Frequency of Meetings
The by-laws will generally designate Board of Directors’ meeting times during the year and the annual shareholders’ meeting. By-laws do not require the corporation to comply with the specified meeting dates or set penalties for not so meeting. However, shareholders and directors should meet or take action by written consent annually – or more frequently as the business of the corporation warrants. The Board of Directors may act by unanimous written consent in lieu of a meeting. The Board may also act by telephone conference call as long as all participating directors can hear each other. Shareholders holding a majority of the outstanding stock may act by written consent in lieu of a meeting. If such shareholder and board action is not taken, taxing authority or court action (including lawsuits) could cause the corporation to lose tax benefits for which it was originally formed.
Any inadequacies in a corporation’s minutes may jeopardize the corporation’s ability to satisfy requirements of lenders, auditors and underwriters. Proper minutes can protect an officer from conflict of interest charges and prove directors’ compliance with applicable standards of care.
Style and Contents of Minutes
Minutes should be brief and to the point and evidence the final decision or action. They need not state detailed background information and discussions. Remember, the minutes may be read by opponents, the I.R.S. and other governmental agencies, a litigating claimant, a disgruntled minority shareholder and others. It is not necessary to name the director who moved or seconded a motion. If a director or shareholder votes against or abstains from voting on a proposal, such vote or abstention should be recorded in the minutes. Minutes should state who was present at each meeting, where the meeting was held, meeting date and time, and the facts concerning the meeting notice or waiver of notice.
Board Decisions
Generally the Board should approve activity that falls outside the ordinary course of business and major decisions, transactions, policies and contracts. The Board should also undertake required banking authorizations; compensation for top management personnel; retirement plans; stock offerings; borrowing transactions; purchase, sale or encumbrance of significant assets; transactions involving a potential conflict of interest, the granting of a power of attorney or special authorization; issues surrounding any officer, employer or agent; and transactions between the corporation and its shareholders, such as compensation for services, loans, purchase or sale of property, leases, medical expense reimbursement plans and employee fringe benefits.
General
These guidelines are general and must be applied and modified to meet the specific needs and concerns of each corporation.
