Once organized, the corporation must maintain a continuous record of all authorized actions - approved by its stockholders or directors.
A complete and detailed record of stockholders’ and directors’ meetings - “minutes” as they are called - is important for many reasons:
1. Parties dealing with the corporation may want evidence that the corporate action was approved.
2. Officers and employees within the corporation are entitled to the protection if their acts were approved.
3. Accurate minutes are frequently necessary to preserve certain tax benefits or to avoid tax liabilities and penalties.
4. Minutes are oftentimes necessary to prove the corporation is operated as a separate entity independent of its principals.
The forms in this kit will help you maintain a well-documented written record of stockholders’ and directors’ actions, in a format that meets legal standards.
By using these forms you can create a complete corporate biography, detailing the important events during the life of the corporation.
Generally, you need only complete the resolution that conforms to the corporate action voted. Occasionally you may need to modify the form to suit your particular needs. Always be certain the resolution accurately states the corporate action approved. In some cases - particularly the more important transactions - you may find it necessary to have an attorney decide what the resolution should contain. While these prepared forms can greatly simplify your recordkeeping requirements, they are not a substitute for your good judgment in deciding how you should document the actions of your corporations.
Stockholders can usually vote on the broadest issues relating to the corporation. These typically include change of corporate name, address, purpose, the amount of authorized or type shares and other matters involving the corporate structure. Stockholders action may also be needed on major legal or financial issues such as whether to mortgage, encumber, pledge or lease all or substantially all of the corporate assets or to file bankruptcy, merge or consolidate. There are, of course, many other actions that can be taken by stockholders. The primary function of the stockholders, however, is to elect the Board of Directors, through whose governance the corporation is actually managed.
Stockholders can act officially only as a group. This means that a formal meeting is needed before they can legally bind the corporation. There are some exceptions where the stockholders can consent in writing to a particular action without having to hold a meeting. These instances, however, are rare.
Certain rules and procedures have to be followed for stockholders to properly conduct an official stockholder meeting.
1. Every stockholder has to be properly notified about the time and place of the meeting, who is calling the meeting and any matters that will be considered at the meeting. It is common in small corporations for the stockholders to do without a formal notice, especially where the by-laws set out the time and place of the regular annual meeting of stockholders. This can be done by having all the stockholders sign a waiver of notice at the meeting. Unscheduled or special meetings of stockholders may require notice, although a signed waiver of notice can be used at these meetings. For an unscheduled meeting to be legally convened, it is essential that the records show that proper notice was given, or that the stockholders signed a waiver of notice requirement. Your articles of incorporation or by-laws will specify where and when a stockholder meeting can legally be held and the book of minutes should show the time and place of each meeting. In this way, you can prove the meeting complied with legal requirements.
2. No business can be transacted at stockholders meeting unless a quorum is present. Therefore, it is essential that the book of minutes reflect a quorum of stockholders attended the meeting. The articles of incorporation or by-laws will usually state the size of the quorum, either in terms of the number of stockholders, or the number of shares that must be represented at the meeting. If there is no rule on a quorum, then whatever number of stockholders shows up for the meeting will constitute a quorum.
3. Stockholder meetings must have a chairperson to preside over the meeting. It must also have a secretary to record what happened at the meeting. The by-laws will ordinarily designate these officials, such as by specifying that the president serve as chairperson, and the secretary act as secretary, however, substitutes are usually allowable.
4. The first items of business at every stockholder meeting should be to read and approve the minutes of the previous meeting. Once the minute as are approved, they legally document what occurred at the meeting. They are most nearly conclusive proof of what the corporation is authorized to do. That is why it is important to show that the minutes have been read and approved as accurate, or that necessary changes have been made.
5. Parliamentary procedure governs the conduct of meetings. It is not generally necessary to identify the person making the motion or seconding a motion. Nor is it essential to record the exact tally of votes, as long as the action approved is clear.
Most of the rules and procedures that apply to stockholder meetings apply equally to meetings of the Board of Directors with several exceptions:
1. Directors will meet far more often than stockholders, and in large corporations may meet monthly. The directors can also hold special meetings for interim board action and in more active corporations they will routinely meet more often.
2. The board - as with stockholders - can only function through a duly called meeting where a quorum of directors (as defined in the by-laws) is present. Directors who may be in conflict with the interests of the corporation may however, not be counted towards the quorum or be entitled to vote.
3. The board must be particularly careful to document not only its actions but why the action was taken. Because the board has responsibility to stockholders - and potential liability to other constituencies - it may be called upon to show why its action was prudent - particularly in areas of dividends, loans to officers, major contracts, compensation and policy making. It is especially critical for the minutes to include or refer to reports, arguments, opinions and other documents to support the reasonableness of the board’s actions.
4. Frequently the board will be called upon to issue “certified resolutions” or “certificates of vote” which conclusively show to third parties dealing with the corporation that the person acting on behalf of the corporation has the required authority.
All records, resolutions and minutes should be kept for no less than six years - although retaining records for longer is recommended considering the numerous types of claims that are possible and the varying statute of limitations.
Properly used, the forms in this kit will provide you with a simple, easy-to-use and legally sound records system for your corporation.