Why Does a Small Corporation Need to Keep Minutes?
Corporate minutes are a reflection of the decisions of the Board of Directors. Even more importantly, corporate minutes are an indication that formalities of the corporation are being kept. If involved in a lawsuit, one way an attorney will attempt to reach personal assets of the officers of the corporation is to check to see if corporate formalities are followed. One important type of formality is keeping records, or minutes of meetings.
Even if you are a single officer of a corporation, or you are a family business, or there are just two of you and the meetings are not formal affairs, you need to keep records of these informal meetings and decisions that are being made for your corporation. Resolutions need to be drawn up ratifying those decisions that affect the life of the business. Corporate minutes are among the most important documents a company must produce and keep. Failing to keep accurate and complete minutes can expose officers and board members to personal liability.
What Should the Minutes Include?
There is no required format, but minutes should include all important decisions made for the company.
- List all directors/members attending
- Include a brief narrative description: What issues were discussed; what significant points raised; what actions taken
- Include record of how each director/officer/trustee voted, including whether the vote was unanimous and if anyone abstained from voting
It is important to ratify and vote on the prior meeting’s minutes. This ensures that each director had a clear understanding of the proposed actions.
What Needs to be Documented in your Minutes?
Is every item as important to record as all others? Absolutely not.
The general rule is if the transaction is in the ordinary course of your business, the kind of transaction you engage in all the time, then there is no need to add those discussions to the minutes. However, if the action is one that enables the business to engage in its business, the discussion of that action should be voted on and added to the written records.
Some major decisions that should appear in the minutes:
- leases–for office space or equipment rental
- significant contracts
- elections of officers and directors
- taking out loans or other kinds of financing
- marketing and advertising campaigns
- mergers, reorganizations or transactions involving the bulk of the corporation’s assets
- providing employee benefits
Although LLCs are generally not required by law to keep minutes or have formal meetings, a writing is always helpful in establishing that the members were in agreement on the actions that are taken.
Finally, if you keep your minutes on your computer, make sure you have a back-up. Discard your notes since they are not a final accounting. Minutes should be kept for at least seven years.
Operating your corporation properly by following state law allows you to focus your attention on running your business, and removes concerns about having to defend lawsuits and losing the limited liability protection that was your purpose for incorporating.