Incorporation offers many advantages to those who want to get involved in a project or an enterprise, whether it is for-profit or not. In fact, one of the main reasons a person decides to incorporate is to limit his/her own personal liability, so that the assets and debts of the legal entity remain separated. However, those who want to get the benefits of the corporate veil must follow corporate formalities and maintain proper records of the day-to-day activities of the legal entity.
To follow proper formalities it is important, among others, to formalize in writing the corporate decisions. In other words, it is necessary to created corporate minutes of each meeting held by the Board of Directors, the Board of Officers, or any other meeting held by the members, managers, or representatives of a legal entity or an organization.
That said, let's take a closer look at the reasons that explain why corporate minutes must be properly drafted and recorded.
Management and control
When a manager or a group of managers take on the day-to-day operations of a business or an organization the owners or the beneficiaries of the entity cannot expect to be able to micro-manage each of their decisions. To have a good idea of the work performed by the manager, the corporate minutes can serve as a reference. To manage their operations the members of an organization meet periodically, during those meetings, they talk about the things that have worked and those that need improvement, the changes of the organization during a certain period of time, the results of its operations, among others.
These discussions should be memorialized in writing so that other members of the organization, interested parties, owners, or legal authorities can have a clear picture of what the management of the organization has been. Additionally, in the case of organizations committed to not-for-profit causes, which usually get grants and donations, such minutes are crucial to know whether the organization is complying or not.
Those who manage a legal entity or an organization owe a fiduciary duty to the owners, the beneficiaries, and even third-parties. According to this fiduciary duty, managers are not allowed to act in bad faith, they are obligated to make informed decisions, and they complete transitions where there is a conflict of interest. If a member of the organization considers that such fiduciary duties have been infringed, he/she can commence a lawsuit against the managers of the organization and in some circumstances against its owners. In this context, corporate minutes may serve as evidence to support or challenge any allegations of unlawful behavior. Additionally, the lack of corporate minutes can serve as evidence that the owners of an organization have only used the entity as a means to act unlawfully.
Legal entities must file annual, semiannual, or biennial reports with government authorities like the Internal Revenue Service, the Secretary of State, the Department of Labor, among others. To complete those reports and to transmit accurate information, the members of an organization used the corporate minutes. These minutes serve as reference and support for the information submitted to public entities in charge of enforcing the law and assure compliance.
Budget and Planning
Each organization is required to keep organized records of its operations if it wants to be successful. For this purpose, some organizations make monthly, quarterly or annual reports, which are used to build strategic plans, periodic budget,s and to adjust their decisions. No budget or strategic plan can be properly structured if an organization lacks knowledge of its past performance. Corporate minutes, properly drafted, informed the members of the organization about the past operations of the legal entity and allow them to make informed decisions in regard to planning and budgeting.
Investment and grants
We have already explained that keeping proper records and maintaining corporate minutes is one of the best practices that the members of an organization can implement to be out of trouble. Following the same logic, if an organization is interested in getting the support of investors or getting a grant for a new hiring or a new project, some of the documents that any investor or grantor will be interested in reviewing are the corporate minutes. If an organization does have corporate minutes which allow a potential investor to know how the organization makes decisions, who is in control, and what kind of protocols are followed, that grant or investment will probably go to another. No investor will feel comfortable in putting his/her money in an entity whose management creates more risks than benefits.
Finally, if an organization is interested in hiring foreign talent, it definitely needs to have proper corporate minutes. When it comes to immigration petitions that involve students and foreign workers, several entities get involved, the Department of State, the Department of Labor, the Department of Education, among others. Before an immigration petition is approved these entities require that the prospective employer proves that it is currently following formalities and in proper compliance with the U.S. laws. In this context, the lack of corporate minutes can be an obstacle to prove that.
Ok... I need proper corporate minutes... How?
The corporate minutes are the documents that explain how the organization makes decisions, whether it is by vote or by a unilateral decision of one person, the procedures followed by the organization, what the operations of the organizations have been during a certain period of time, and more. Accordingly, corporate minutes should be drafted considering at least the following points:
Name of the organization
The name of the organization whose minutes are being formalized. Example. ABC, Inc.
The date when the members of the organization are meeting to discuss a particular matter.
For purpose of evidence, that the meeting has been held in accordance with the rules of the organization (By-Laws, Operating Agreements, etc.) it is important to indicate the city where the members of the organization met. If the members are meeting online, this should also be stated, indicating where is located each member.
Purpose of the meeting
The purpose of the meeting would be specified to understand the minutes, to know whether the meeting was valid, to determine if the meeting had to be informed accordingly to a specific protocol.
Form of Convocation
Information about the protocols or formalities followed up to inform the members of the organizations about the meeting and the topics to be discussed.
Names of those present at the meeting
It is very important to know the names of the members that attended the meeting. Here, it is worth noting that depending on the rules of the organization, the decisions taken in a meeting may or may not bind those absent.
To know if a meeting and any decision taken therein is valid, it is necessary to know what is the required quorum and whether there was a quorum.
The order of the day
The process upon which the meeting was conducted.
The decision process
Whether the decision was taken by vote or any other protocol. The number of votes and the number of members who left the meeting before voting or who did not vote.
Topics to be discuss
Whether there were any topics left out and whether there would be reviewed at a later time.
Witnesses and signatories
The person present at the end of the meeting who serve as witnesses of the events that took place and that were memorialized by the minutes.
The Law Office of Giselle Ayala can help you!
Every organization and business should consider working with a professional willing to help it succeed. Corporate formalities and proper protocols are definitely part of the process. The Law Office of Giselle Ayala Mateus understand will be more than happy to work with you. Considering that each business is different and that each organization has particular needs or challenges, our office offers services based on hourly fees and others subject to a flat fee or a cap. The first step os to schedule a free consultation to determine how we help you!