Sunday, November 8, 2009



The good news is that you don't need to document routine business decisions—only those that require formal board of director or shareholder approval. In other words, it's not required by law or practice that you clutter up your corporate records book with mundane business records about purchasing supplies or products, hiring or firing employees, deciding to launch new services or products, or any of the host of other ongoing business decisions.
But key legal, tax, and financial decisions absolutely should be acted on by your board of directors and occasionally all of your shareholders. What kinds of decisions are considered "key?" The proceedings of annual meetings of directors and shareholders, the issuance of stock to new or existing shareholders, the purchase of real property, the authorization of a significant loan amount or substantial line of credit, and the making of important federal or state tax elections—these, and other key decisions, should be made by your board of directors or shareholders and backed with corporate paperwork. That way, you'll have solid documentation in the event key decisions are questioned or reviewed later by corporate directors, shareholders, creditors, the courts, or the IRS.
There's more good news about the task ahead of you. As you'll learn, having your board of directors ratify important corporate decisions doesn't necessarily mean dragging directors to a formal meeting, although this is one option. Corporate decisions can also legally be made over the phone or by mail, fax machine, email, or bulletin board conference, or any other practical means of communication among directors or shareholders. And once decisions are made, there are several easy-to-use ways to document these decisions—by preparing written minutes for a corporate meeting or preparing written consent forms to be signed by the directors or shareholders. (Most states allow any action that can be taken at a meeting to be taken by the written consent of directors or shareholders) If the consent form method is used, no meeting is held; instead, directors sign a form that shows agreement to a particular transaction or decision.


Why bother to prepare minutes of meetings or written consents for important corporate decisions? Here are a few excellent reasons:
? Annual corporate meetings are required under state law. If you fail to pay at least minimal attention to these ongoing legal formalities, you may lose the protection of your corporate status.
? Your legal paperwork provides a record of important corporate transactions. This "paper trail" can be important if disputes arise. You can use this paper trail to show your directors, shareholders, creditors, suppliers, the IRS, and the courts that you acted appropriately and in compliance with applicable laws, regulations, or other legal requirements.
? Formally documenting key corporate actions is a good way of keeping shareholders informed of major corporate decisions.
? Directors of small corporations commonly approve business transactions in which they have a material financial interest. Your minutes or consent forms can help prevent legal problems by proving that these self-interested decisions were arrived at fairly, after full disclosure to the board and shareholders.
? Banks, trusts, escrow and title companies, property management companies, and other institutions often ask corporations to submit a copy of a board or shareholder resolution approving the transaction that is being undertaken, such as a loan, purchase, or rental of property.



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