Six Hallmarks of Good Company Board Minutes
A California corporation acts through its board of directors. The shareholders — the owners — meet once a year to elect the board. The board then makes all the important decisions for the company. The board is required to meet at least annually, although the board can meet in special sessions if there is some particular urgency to act.
Minutes of these meetings are very important. “Minutes” is a legalistic term that simply means “notes.” Someone is generally tasked with taking the minutes. Here is a quick discussion of the six hallmarks of good board minutes.
Showing a quorum and legal right to act:
It is crucial that board minutes document “who was present” at the meeting. The board can only act if a “quorum” is present. Quorum is usually defined as the majority of directors, although the articles of incorporation or bylaws can provide for variations such as a supermajority. Thus, by showing “who was present” good board minutes show that the corporation was legally entitled to conduct the business that it conducted.
Springboard to action:
Good minutes also look to the future by showing what was voted on, what decisions were made and, importantly, what decision are pending. In this manner, good board minutes are a springboard to action for the next meeting. In this manner, time is save and confusion is avoided.
Keeping a running list of “pending” issues:
In a similar manner, good board minutes can serve as a “running agenda” for the company. Some corporate decisions take time to develop. Some actions are under research and development. None of these “ripening” issues are ready for a board vote, but it is still important to keep track of these. Good board minutes will keep a list of issues that “under discussion” or “pending.”
Documenting the business judgment rule:
In general, corporate directors cannot be held liable by the shareholders and owners of the company if they acted honestly and in their best judgment based on as much information as was available. This is called the “business judgment rule.” Good board minutes help document that the directors have satisfied the business judgment rule. Good minutes will provide the exact wording of various proposed actions/motion and the votes. Thus, if a director voted “no,” at minimum, that eliminates any potential blame if the decision proves to be “bad.” If a director voted “yes,” good minutes will also show that some sort of discussion was had and if some sort of report was provided.
Creating “business records” admissible as evidence:
This one is for the lawyers — if the directors and/or owners ever end up in litigation, good company minutes will become evidence for the lawsuit. One of the exceptions to the hearsay exclusion of documents is the “business records” rule. If a document was created in the normal course of business contemporaneously with the event in question, the document is allowed to be used at trial. “Contemporaneous” does not necessarily mean “at the time” or even “the same day.” If notes are made in the normal manner within a reasonable time frame — by the next meeting, for example — the minutes will be deemed “contemporaneous.”
Refreshing the memory years later:
This one is also for the lawyers — the fact is that people’s memory is faulty. But, it is also well-documented that memory can be triggered and refreshed. We experience this when a certain smell brings back memories from our childhood, for example. Well-drafted board minutes accomplish the same purpose. Likely years later, participants at the meeting will have forgotten many details. However, their memories can be refreshed by reading and reviewing the notes taken at the time. At minimum, the participants can agree — hopefully — that the minutes are accurate as written and, thus, the minutes can serve as evidence of what happened.
Contact San Diego Corporate Law Today
For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for businesses and corporations including corporate formation, annual maintenance, custom-drafting of articles and bylaws, preparation of corporate minutes, and all related corporation legal needs. Mr. Leonard can be reached at (858) 483-9200 or via email.