Preparing Board Meeting Minutes: Necessary Evil and Corporate Drudgery?

For many entrepreneurs, the idea of preparing minutes of board meetings seems like a thankless chore, especially when there are only two or three directors. It may be tempting to skip this corporate formality if the purposes for it are not understood. Also, many entrepreneurs wonder what magic language should go in them to make them “legal.”

Reasons for Preparing Board Meeting Minutes

There are several reasons for preparing good corporate minutes:

  1. State Law Requirements and Corporate Bylaws. State laws generally require corporations to prepare and keep minutes of board meetings. According to Delaware state law (a state where many companies are incorporated), “one of the officers shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose.” The Wisconsin Statutes do not require corporations to take board minutes unless requested by a director, but most corporation bylaws require the corporation to maintain adequate minutes of board meetings.
  2. Reduce Personal Liability Exposure. Preparing and maintaining proper corporate minutes may help reduce the risk of personal liability. Directors have a fiduciary duty of care, meaning that they have to show that they sufficiently analyzed the alternatives before making a decision. They also have a fiduciary duty of loyalty, meaning that they must act in the best interest of the corporation and its shareholders, above any of his or her own interests. Maintaining good corporate minutes can help to establish that the duties of care and loyalty have been fulfilled. Also, by having good corporate records, there may be less chance of a third party “piercing the corporate veil” by claiming that the corporation is nothing more than a sham of the owners who disregard the separateness of the entity and should not receive the benefits of limited liability protection.
  3. Third Party Requirements. Another reason to keep minutes is to provide evidence of approval of transactions involving third parties (e.g., banks, investors, and strategic partners). In addition to being a state or bylaws requirement to approve significant transactions, some third parties require evidence of such approval as a condition of closing.
  4. Reduce Likelihood of Certain Types of Litigation. In a 2006 case, the Supreme Court of Delaware described best practices for approval of an action by a board committee and concluded that the company could have avoided decade-long litigation if proper minutes had been recorded for every meeting with detail regarding the information that was used to make the decisions.
  5. Creation of a Historical Record. A bonus of preparing minutes is that the company will accumulate a searchable, historical record of all of the significant actions taken by the company. By either gathering signatures electronically or by scanning and combining the final, signed minutes into a searchable PDF binder, they will be easily searchable and ready for delivery to future investors, bankers, and auditors who require them for a transaction or audit.

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Paper Stock Certificates: A Thing of the Past?

As public companies are increasingly opting out of providing paper certificates to shareholders in favor of providing electronic registration (a movement known as “dematerialization”), most private companies and their shareholders have yet to follow suit.  Issuing uncertificated shares is allowed under most states’ laws, and, as many on the public company side can attest, numerous cost and time efficiencies can be gained by going paperless with shares.  As we accept electronic statements to represent our public company holdings and exhibits to Operating Agreements to note our LLC ownership interests, do we really still need as evidence of our private company ownership a hokey, bordered piece of paper with an eagle on it?

Disadvantages of Issuing Paper Stock Certificates

Consider the inefficiency and chances for errors in the typical cumbersome process to issue paper stock certificates:  Continue reading →

Effective Contract Management

Effective contract management can save a company time and money and mitigate risk. Even so, often after companies painstakingly negotiate agreements, they frequently file them away and move on to the next business negotiation without giving them much further thought. Getting control of contracts then can become a fire drill after deadlines are forgotten or when a potential strategic partner or acquirer wants to look at a company’s contracts.

Contract management is often ignored or relegated to the backburner due to more pressing daily demands or delegated to someone without the time or ability. Plus, for some companies without relevant expertise or time, it can be daunting to select a contract management solution and integrate the company’s contracts into the management tool. The earlier a company develops discipline in managing its contracts, the earlier it will reap the powerful rewards, including the ability to quickly and easily do the following:

  • anticipate expiration and renewal dates
  • manage its own deliverables
  • monitor third party performance
  • monitor and understand trends within recurring contracts
  • produce custom reports based on unique search criteria

Having a good contract management system may also speed the due diligence process of a significant business transaction, as the contracts will have already been reviewed for completeness, summarized for searching and reporting purposes, and scanned for ready delivery. With more sophisticated contract management systems, not only are executed contracts managed better, but the contracting process on the front end can become more streamlined and efficient and yield higher quality and consistency among contract terms.

Variables to Consider when Selecting the Appropriate Contract Management System

When selecting a contract management system for an organization, it is important to consider both the complexity of the organization’s contracts as well as current and anticipated future needs of the organization. Here are some considerations:

  • How many people are involved in contract administration, and how many people need to have read-only access?
  • Do the users need to have electronic access to the agreements?
  • Do the users need to have access to agreement summaries?
  • Is it desirable for the agreement text to be searchable as well as the summary?
  • Are there certain controls the organization would like to have in limiting access by some people to only certain types of contracts?
  • How comfortable are the users with spreadsheets, databases and vendors’ applications?
  • How many contracts, what types of contracts, and what variations in those contracts does the organization have?
  • What key elements of a contract does the business want to monitor?
  • Are email reminders of key dates needed?
  • How important is it to have a turnkey solution that provides customer relationship management and full contract lifecycle management, including a contracting approval process?
  • Is it desirable to use a hosted solution as a document repository to free up space on the company’s network?
  • What is the budget?

Depending on the company’s current and anticipated needs and desires, the solution may be a simple spreadsheet, a homegrown database, a licensed software application, or a web-based hosted service. Ideally, the solution should be scalable so it can grow with the business, or at least the data should be easily exportable, in case a different contract management system is more appropriate as the business evolves.

Using Spreadsheets for Contract Management

A simple spreadsheet is better than nothing and may suffice if the business has relatively few contracts or many of a similar, simple standard form. The advantages of a spreadsheet are that it is inexpensive and easy to use. A spreadsheet can also be supplemented by scanning the agreements as text searchable PDFs. However, a spreadsheet has limited or no functionality to provide email reminders, tailored permissions by document or category, multiple non-standard contract elements, advanced searches, and various reports.

Using Databases for Contract Management

If the business has an employee or advisor experienced with creating databases, that person could create a tailored database for the business, with specialized contract clause fields, a user-friendly form interface, and customized searches and reports. Vendors’ database products frequently offer greater functionality, such as the following:

  • email reminders
  • tailored permissions
  • customizable fields
  • ability to upload agreements and make them searchable
  • auto extraction of key data
  • sophisticated searches and reports
  • an unlimited hosted document repository
  • customer support
  • military-grade security

Pricing can be surprisingly reasonable. It depends on the sophistication of the software, the number of users, and whether it is a software license with one-time license fee and annual maintenance fees, or a hosted solution with ongoing subscription fees that include customer support.

Designating a Contract Administrator

Equally important as choosing an appropriate contract management tool is designating one or more qualified administrators to assume the contract administration function. The administrator(s) should (1) be able to interpret and summarize legalese, (2) be comfortable with the contract management system selected, and (3) have the time to dedicate to contract administration. Consistency of data entry wording is also important for helping retrieve data through searches of summaries. As the adage goes: Garbage In-Garbage Out! If the business does not have a qualified contract administrator in-house, a corporate paralegal at a law firm can fulfill that role or train someone within the organization to serve in that role.

While implementing effective contract management takes some planning and resources, for most businesses the benefits are well worth it. The earlier a business commits to contract management, the sooner it will begin reaping the rewards.