San Diego Corporations: The Importance of Board Minutes
Many California corporations know that meetings of the Board of Directors are required at least once a year. However, some may not recognize the importance of board minutes. Here is a brief discussion of why board minutes are so important. To do this correctly, the board should seek the advice and help of an experienced San Diego business law attorney.
Why are Board Minutes Important in California?
To begin with, under the California Corporations Code, corporations are required to keep “a record” of all meeting of the Board of Directors. Generally speaking, “a record” is considered to be minutes from such a meeting.
Aside from meeting this statutory requirement, board minutes have the following functions:
- Serve as prima facie evidence of corporate authority to take certain actions (such as purchase real estate)
- Stand as permanent record of who were/are corporate directors and officers and when said persons were elected and their respective terms of office
- Provide proof that the annual meetings were held
- Provide a record of how decisions were made — via vote, board committee or otherwise
- Provide a record of what information was relied on — advice of counsel, information from board committee, or other
- Serve as evidence used by courts to determine whether a board fulfilled its fiduciary duties of due care and loyalty, avoided conflicts of interest, and satisfied the “business judgment rule”
- May help prevent shareholder derivative actions since board minutes can show that the board fulfilled its fiduciary duties of due care and loyalty, avoided conflicts of interest, and satisfied the “business judgment rule”
- Prevent or lessen likelihood of shareholder lawsuits over access to records — shareholders have statutory rights to access and inspect corporate records; the absence of records could lead to shareholder lawsuits over failure to keep records
Why is it Important to Carefully Draft Board Minutes?
In general, when drafting legal documents, remember who your audience is. Who is going to read these documents? Your board minutes will be read by shareholders, future board members, lawyers (both yours and adverse lawyers), and potentially by judges and others such as financial institutions and title companies (if the company seeks financing or wants to purchase real property).
As such, it is important to have well-drafted board minutes so that readers can clearly discern what happened at the board meeting. The board minutes must accurately reflect that the board heard discussion, took votes, and agreed to take whatever actions are being approved. If, for example, the board is approving the purchase of some property, there must be board minutes with the following minimum detail:
- Description of the property and the transaction
- Description of the board’s investigation into the transaction
- Statement of the board’s determination/vote that the purchase is in the best interests of the company and
- That the board voted to authorize the signing of various contracts and documentation to consummate the purchase
Similarly, if the company is buying another company, there must be board minutes with the same sort of detail. Additionally, it is often very important that the board ratify decisions and actions taken up to that point by various company officers and employees. All of this detail in the board minutes help prove that the board is acting as required by the Corporations Code and is satisfying its various duties and obligations.
Call San Diego Corporate Law Today
For further information and help drafting board minutes, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to set up your corporation, review your bylaws and articles, draft minutes, and help meet the specific and unique legal needs of your business. Call Mr. Leonard today. He can be reached at (858) 483-9200 or by email.