Corporate Minutes: What Not to Include to Avoid Legal and Business Risk
California corporations must have annual shareholder meetings and must have regular board meetings. In addition to holding the meetings, there is a legal requirement that “minutes” be taken of any corporate meeting. Other corporate entities, like limited liability companies, are permitted to have various meetings, but meetings may be waived in the operating agreement or similar documents providing for governance. If there are meetings, corporate minutes must be taken. The reason that corporate entities must have meetings is because, as a legal entity separate and apart from its owners, a corporation only acts through its human agents and human agents must meet to act. The “minutes” are a written document that records how the corporation acted and what action and/or actions were taken at a given meeting.
Drafting meeting minutes can seem daunting partly because many mistakenly believe that minutes must be detailed and exhaustive. A trusted and experienced San Diego corporate attorney can provide assistance and advice with respect how to draft your corporate minutes. From a legal standpoint, overly detailed minutes should be avoided. This helps reduce business and legal risks. Here are some tips:
- Narrative type minutes should be studiously avoided — a long recitation of what was discussed is not necessary and is legally risky — simply write: “A motion was made and seconded” — never have a court reporter, a recording, or a transcript
- The minutes should be kept short (unless there were many proposed resolutions and votes)
- Unless requested by the meeting participants, the minutes should avoid identifying what was said by specific participants during discussions — individuals should be not be quoted
- Passive voice is preferred — “Opposition to the motion was heard”
- A description of views or argument positions is not needed and should be avoided
- Each part of the meeting should be described, but briefly — “The board came out of Executive session and a vote was taken”
- Unless requested, votes totals should not be listed — proposals should be shown as “approved unanimously,” “approved” or “not approved”
- Unless requested by the participants, how each participant voted should not be listed
There are several reasons why these tips result in “good” corporate minutes. First, understand that meeting minutes have only a short list of potential readers. None of those potential readers want or need long meeting minutes. For example, if the corporation is obtaining financing, the lender will require approval of the loan from the board or the shareholders. The lender wants to read a short set of minutes showing the vote approving the loan. The lender does not want to wade through a 20-page transcript. Second, a long narrative type set of minutes can be risky. Imagine that there was a heated disagreement among the board members about taking out the loan. In fact, imagine that the argument lasted for an hour and shouting was involved. If those details are written out in the board minutes and such minutes are given to the lender, the lender may have second thoughts about making the loan. Indeed, the lender might reconsider if the lender sees there was opposition to the taking the loan. In a similar manner, if litigation is filed, overly-detailed minutes have the potential to provide ammunition to opposing attorneys. If you are unsure about including specific items in annual meeting minutes, reach out to your experienced San Diego corporate attorney to see what would be the best fit for you.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named “Best of the Bar” for four years running by the San Diego Business Journal. Mr. Leonard provides a full panoply of legal services for businesses including formation of corporate entities of all types. Like us on Facebook.