Small companies and startup businesses might view keeping corporate records as a low priority. Public companies and other large companies can usually have their attorneys keep their minute book up to date, but that can be expensive for small companies who may not have an attorney or law firm that they engage on a regular basis. This post describes what items should be kept in your minute book and why it is important to keep up to date with corporate records.
What to keep records for
In general, your company’s minute book should have records for all formal board and shareholder actions as well as a complete record of stock ownership. In addition, your company’s minute book should include a copy of the articles of incorporation and bylaws as well as any amendments to these documents.
Why to keep records
You might be wondering why you should keep current with your minute book or even have one at all. Below are a few of the important reasons to keep a minute book for your company.
- The minute book leaves a trail that enables owners and attorneys to look back at the decisions and transactions of a corporation. The minute book is an important audit backup. The minute book can help determine effective dates for tax purposes and establish justification for the accrual of expenses and fixed obligations.
- Up to date records can help you avoid challenges to the corporation’s authority to take certain actions. These challenges might come from minority shareholders, fellow directors, employees or government agencies. Your corporate minutes are important records of the authority granted to the corporate officers and directors to act on behalf of your company.
- The minute book establishes the background record needed by your lawyer to support certain legal opinions. When a corporation undertakes a certain transaction, it is often necessary to obtain a legal opinion regarding the corporation’s history as well as current authority for such a transaction. An example may be something as simple as securing financing from a bank.
- The corporation’s minute book should include stock records. This section needs to be carefully kept current because it is the one true ownership record of the stock of the corporation. Ownership is not officially recorded anywhere else. Your minute book should reflect exactly when and to whom shares of stock have been transferred. It is sometimes a good idea to keep the original stock certificates of the owners with the minute book – this prevents the certificates from becoming lost and prevents shareholders from selling their stock without the corporation’s knowledge.
- Your minute book is extremely important if you ever decide to sell your company. Any potential buyer is going to want to look at your minute book to ensure all actions have been properly taken. This will help the potential buyer evaluate any outstanding liability your company has. For example, if your company merged with a subsidiary in the past, but you do not have the records showing a board resolution approving the merger, a potential buyer might ask to decrease the purchase price based this outstanding liability.
If you can’t remember the last time you updated your minutes, now is a good time to give your attorney a call. Or, if you are just starting a company, you should contact an attorney to help you set up a minute book.