Archive for the ‘Reference’ Category

Board and Shareholder Approvals 101 for Emerging Technology Companies

Now that you’ve incorporated your emerging company, you may be wondering, “How often do I need to hold Board and shareholder meetings?” and “What decisions do I need to bring to the Board or the shareholders?”  These are common questions, and the answers differ company by company, to some extent.  This article is written for founders of typical early stage emerging technology companies.

Sources of Requirements for Shareholder Approval

Which corporate matters are required to be brought to shareholders for a vote is primarily statute-driven, meaning that, under law, certain actions have to be approved by shareholders in order for the corporation to take such actions.  Such matters include company name changes, an increase in the number of authorized shares, the creation of a new class of stock, and certain fundamental changes such as mergers, conversions, and sales of substantially all of a corporation’s assets.  The company’s investment-related agreements also may require investors’ approval in their capacity as shareholders before taking certain types of actions, like raising more capital or other significant actions.   In most cases, actions of the shareholders can be taken at a meeting or by a written consent, both of which must follow the rules prescribed in the corporation’s Articles of Incorporation and Bylaws.  If permitted by the Articles of Incorporation and Bylaws, in most cases the written consent of shareholders may only require consent of a certain percentage of holders of each class, as long as the company promptly notifies all shareholders of the approved action.

Sources of Requirements for Board Approval

The role of a Board in decision-making is a grayer area than the role of shareholders; it depends on a variety of factors.  Statutes of the state in which the corporation was formed mandate that certain actions be approved by the Board.   The company’s investment-related agreements may also require the approval of a supermajority of the directors or the investor-designated  director(s) for certain types of actions, such as budgets or expenditures over a certain amount.  To varying degrees depending on the relationship between the Board and management, the Board delegates some of its responsibility for the business and affairs of the company to the officers.  Commonly accepted practices also factor into how company decisions are made.

Actions of the Board can be documented in one of two ways: (1) minutes of a meeting duly called at which a quorum was present, or (2) a written consent signed by all the directors.

Standard Practice for Board or Shareholder Actions for Emerging Companies

Whereas a basic family-owned or service business with no new share issuances or other key structural changes may get by with just one annual shareholder meeting or written consent reelecting directors and one Board meeting or written consent reelecting officers and ratifying actions of management over the past year, that’s typically not adequate for an emerging technology company.  Such companies are often involved in bridge loans and equity investments, issuing stock options or restricted stock to employees and directors, and adding and removing officers and directors, all of which should be properly documented with meeting minutes or written consents.  Below is a list of documents and actions that commonly affect an early stage company’s life and the typical approvals that are either required by law, bylaws, or an agreement, or are just good corporate practice.

Document/Action General Guidelines Based on Requirements or Best Practices
Incorporator actions (i.e., filing initial Articles of Incorporation) Board ratification
Articles of Incorporation – amendments Board approval and usually shareholder approval
Bylaws – initial adoption and amendments Board or shareholder approval
Securities issuances and redemptions (e.g., stock, stock options, warrants, and convertible notes) Board approval and sometimes shareholder approval, depending on the context
Stock transfers Board and sometimes shareholder approval, if required by a shareholder agreement or other agreement with rights of first refusal
Stock Incentive Plan Board approval and, in most contexts, shareholder approval within one year
Investment documents for bridge and equity financings (e.g., Stock Purchase or Subscription, Voting, Right of First Refusal, and Investors’ Rights Agreements) Board approval and, in many contexts, shareholder approval
Conversion, merger, acquisition, and other key corporate restructuring events Board and, in many contexts, shareholder approval
Appointment and removal of officers Board approval
Election and removal of directors Shareholder approval and, in limited contexts, director approval
Executive employment documents, executive compensation plan/bonuses Usually Board approval and sometimes shareholder approval*
401(k) plan, profit sharing plans, and similar plans Board approval
Loans, credit lines, and other bank financings, including authorized signatories Board approval and sometimes shareholder approval*
Annual budget Board approval and sometimes shareholder approval*
Audit firm selection Board approval and sometimes shareholder approval*
Lease – new, extension, or significant amendment Board approval
Arms-length agreement with related company (e.g., Intercompany Agreement, IP Licensing Agreement) Board approval and sometimes shareholder approval*
Term sheets (e.g., for investor financings, joint development, licensing) Usually Board approval
Important agreements with key business partners (e.g., research, development, licensing, supply, distribution, etc.) Usually Board approval

* in certain limited contexts involving outside investors with certain contractual rights

Routine agreements related to sales, consulting, vendors, confidentiality, and non-executive employees are typically decided on by management.  Each company’s situation differs, so it is often a good idea to talk with your attorney when deciding on the parameters for proper approvals.

Consequences of Failing to Obtain Necessary Approvals

You may be asking, “Who cares anyway?”  Your investors, future acquiror, regulatory agencies, and future potential disgruntled employees and business partners care.  You have a vested interest because you are personally and financially vested in the company’s success.   Failure to comply with appropriate approval levels and best practices can yield the following “parade of horribles,” many of which we have seen firsthand:

  • Your investment deal could get unwound, requiring the company to return investment funds (now spent) to the investors.
  • The Internal Revenue Service may audit the company and discover it has violated Section 409A of the Internal Revenue Code and impose taxes and penalties on the equity grant recipients.
  • Your acquisition or venture capital investment could be delayed while your attorneys fix past errors and omissions.
  • You could lose credibility in front of your Board members for failing to bring key information to their attention.
  • Your standing in a lawsuit could be compromised because you failed to obtain adequate board and shareholder consents approving a later disputed action.
  • In egregious situations, the “corporate veil” could be pierced due to this and other negligence, exposing you and others to personal liability.

While corporate governance may at times seem like self-serving fluff, it can help prevent these and other time- and money- draining problems.

Advantages of Obtaining Proper Board and Shareholder Consents

By understanding the roles and interplay between Boards, shareholders, and management, you will be in a better position to know when proposed actions are to be approved by which constituency or group.  Doing so will help you gain the trust of your stakeholders and avoid problems down the road.


October 3rd, 2012 by Macy Stoneback | Permalink | No Comments


Electronic Minute Books 2.0

As a paralegal, I have done my fair share of preparing and updating corporate minute books.  Keeping an organized, complete minute book is necessary for establishing the legal record of actions properly documented, retrieving information, and quickly disclosing documents to investors for due diligence, among other reasons.  Despite the proliferation of electronic files, physical copies of minutes and consents are still typically kept in three-ring binders or those confounded hard red books.  Neither Wisconsin nor Delaware laws require that minutes be kept in original, hard copy.

There are more efficient, searchable, paperless ways of maintaining corporate records.  The best solution depends on how a company weighs the below factors.  The following table compares the traditional paper method to various electronic options.

Paper Binders

Company Network File Folders

Cloud-based Storage (e.g.,,

Tailored Solution (e.g., Corporate Focus or Secretariat)

Ease of Use

Clunky books

Simple navigability

Login; simple navigability

Feature-rich, so more complex



Yes, limited


Yes, advanced

External Review





Controlled Access/ Permissions

No, unless by lock and key




Accessibility Anywhere


No, unless external access is set up

Yes, via Internet

Yes, via Internet






Make Notes Regarding a Document

Sticky notes




Hyperlink to bulky attachments

No, just paper cross-reference page




Backup Copies





Easy Exportability




Yes, but more involved to export database fields


None, except office supplies and staff time


$10 – $20/mo.



At the very least, this table demonstrates how electronic minute books have significant advantages over their hard copy counterparts.  The main advantages that the cloud-based solutions have over network file folders are external access and search features.  External access is an extremely important factor for at least a few reasons: (1) it is a more secure way to share files than by email, (2) it is deal-room ready for review by potential investors and buyers, and (3) in a separate folder, documents can be shared with the board of directors for board meetings.   Beyond simply storing documents, tailored solutions can offer a richer set of capabilities, such as (1) tracking capitalization and equity grants, (2) preparing stock certificates, (3) storing contact details for officers and directors, and (4) setting reminders.  The added capabilities are rather expensive though for most small companies.

As with any decision whether to move files to the cloud, there are considerations of security and reliability.  Many have written on this topic, but at the very least you would want to look into encryption protocol, administrative, technical and physical safeguards for security, geographic redundancy, the cloud provider’s reputation / longevity, and their policies for file recovery in the event you inadvertently delete a file.

If you decide to use an electronic storage method for your minute book, it is important to develop and follow an organization structure and file naming conventions for the documents.  Here’s one way to organize and name the files (bold titles represent folders):


2011-01-31 Articles of Incorporation

2011-03-16 Certificate of Authority (IL)

2011-07-21 Articles of Amendment


2011-02-03 Bylaws

2011-07-15 Amended and Restated Bylaws

Minutes and Consents

2011-02-03 Incorporator Consent

2011-02-03 Board Consent

2011-04-01 Board Consent

2011-04-01 Shareholder Meeting (This would likely consist of an Agenda, Minutes, Affidavit of Service, and Exhibits, all of which could be combined into an Adobe Portfolio or Binder)


Stock Tables

Capitalization Table (w/separate tabs for snapshots as of various dates)

Equity Grants Tables (w/separate tabs for options, restricted stock, and other types of awards)

Stock Register

Warrant Register

Stock Certificates (or Stock Issuance Statements, if uncertificated)

01.         Jones

02.         Capitol Investment Group

03.         Green Partners

Stock Incentive Plan

ABC Inc. Stock Incentive Plan

Equity Grants

Restricted Stock

2011-05-17 Meyer

Stock Options

2011-04-05 Johnson

2011-04-05 Williams


01.         Capitol Investment Group

02.         Green Partners

Documents will be displayed in alphabetical order, so the file names should start with either the number of the document (if numbered) or the date to force a logical display order.  The organizational folders and file naming conventions will vary depending on the types of documents, but the above structure gives a baseline framework.  Electronic drafts of these documents should be kept in another folder so it’s clear that the above folders include only the final versions.

For companies that already have years of company history stored in hard copy minute books, the decision to convert to electronic minute books is a cost-benefit analysis.  The cost is the time for a staff member or intern to scan, save, and organize the files (perhaps as a down-time project) or the fee to outsource to a digital reproduction service.  Then, companies must train their personnel on the new system.  The benefits are listed in the above table.  Many will conclude that the benefits outweigh the costs.

Let’s face it — organizing minute books is not most people’s idea of fun (unless you’re warped like me).  However, keeping your corporate minute book documents organized, especially electronically, will help you find information you need and speed up the due diligence process for an investment, acquisition, or other deal.  Developing a plan early in your company’s life, or converting from a paper system to an electronic system, will be well worth the time invested.


August 8th, 2011 by Macy Stoneback | Permalink | No Comments


The Confusing World of Joint Ownership of Intellectual Property

A confusing topic for many entrepreneurs is joint ownership of intellectual property.  It often comes up in connection with joint development arrangements, subcontracting portions of work, joint ventures, and other collaborative projects involving intellectual property development, whether it be in connection with software, cleantech, medical device, drug development, or other technology-based initiatives.

Joint ownership of intellectual property can result when two (or more) people co-invent a patentable invention or co-author a joint work of authorship.  Joint ownership can also come up as a matter of a compromise in a contract.

While it may seem fair and a reasonable compromise to declare that all intellectual property developed as part of a collaborative project should be jointly owned, many of the implications of jointly owned intellectual property are counterintuitive.  For instance, joint ownership related to patents is very different than joint ownership of copyright.

So, let us go through the basic implications of joint ownership by the default rules in the United States for patents, copyright, trade secrets, and trademarks.

Joint Ownership of a Patent

In the absence of an agreement to the contrary, each joint owner of a patent may make, use, offer to sell, sell and import the patented invention without the consent of the other joint owners, provided that the joint owner does not infringe the patent rights under a separate patent.  Notably with patents, there is no duty of accounting among the owners of the patent.  In other words, one owner can profit from the patent and does not have to share  the proceeds of the profits with the other owner(s).

To exclusively license a patent to another, however, generally requires the consent of all the owners of the patent.  Also, the consents of all owners of a patent are generally needed for patent enforcement.  This means that in many cases, any single owner can limit enforcement of the rights under the patent.

Joint Ownership of Copyright

Analogous to patents, each owner of a copyright is free to copy, distribute, prepare derivative works based on the joint work, and exercise the other exclusive rights of copyright.  Unlike patents, however, joint owners of copyright do have to account to one another for profits they receive in connection with the jointly owned copyright.  In other words, each owner has to share the profits with the other owners.

To exclusively license copyright requires the consent of all the owners of the copyright.  Also, unlike joint owners of a patent, one owner of a copyright cannot block another owner of that copyright from suing for infringement by simply refusing to join in the suit.  While each individual owner has the right to enforce the copyright in preventing others from using the copyrighted material, another owner can circumvent that enforcement by simply licensing to the “infringer” the right to use the copyrighted material.

Joint Ownership of a Trade Secret

The law surrounding joint ownership of trade secrets is not as well established as it is for patents and copyright.  As with copyright, joint owners of a trade secret likely have to account to one another for profits related to the trade secret.  Although, that conclusion is not entirely clear by case law or statute.  To exclusively license a trade secret likely requires the consent of all the owners of the trade secret.  Sometimes joint ownership can make maintaining secrecy difficult, however, which if compromised could jeopardize the trade secret status.  Although in some contexts, joint owners may have an obligation to one another to keep a trade secret confidential.

Joint Ownership of a Trademark

While joint ownership of trademarks is possible, it is somewhat unusual in that joint ownership is counter to the fundamental purpose of a trademark, which is to serve as a designation of origin from a single entity or person.  A more common strategy is a jointly owned single entity owning the mark.  When there is joint ownership of a trademark, however, as with copyright and trade secrets, joint owners of a trademark likely have to account to one another for profits related to the mark.  To exclusively license a trademark requires the consent of all the owners of the trademark.

Other Issues of Joint Ownership of Intellectual Property

There are a few other general things to keep in mind with regard to joint ownership of intellectual property.  As with the status of joint ownership itself, the parties can modify many of the default rules by addressing the particular issues in a contract, subject to certain legal restrictions such as those related to antitrust.  For example, the parties can decide that only one party is in charge of registration, maintenance, and prosecution of the intellectual property and that the parties must share all royalties in a certain manner (e.g., 70/30).

In addition, the default rules outlined above are quite different in many foreign countries.  For example, in Canada and the U.K., in the absence of an agreement to the contrary, a joint owner of a patent, while having the right to exploit the patented invention, has no right to license it to a third party without the consent of the other owners.

While joint ownership makes sense in certain contexts, many times it does not.  Often joint ownership sounds good in concept at a very high level, but when emerging companies understand the implications of joint ownership of intellectual property they frequently try to avoid it or they contract out of many of the default rules.

July 26th, 2011 by Matt Storms | Permalink | 5 Comments


Who Owns the Rights to Customer Feedback?

Suppose a customer proposes an idea to improve the software or SaaS offering of a company. The company likes the idea so much that it integrates the idea into its next upgrade. The question becomes, who owns the idea that is integrated into the software or SaaS offering?

As a general rule, the person who creates an idea, authored work, invention, or process, owns the related intellectual property.  There are exceptions to the general rule.  But, in the software and SaaS arena involving licensors and licensees, the general rule applies in most circumstances.

With ownership established by law, there are several ways to handle the intellectual property rights related to customer feedback through contracts and policies.  Here are some of the approaches companies take:

“We don’t want your ideas”

One approach is to not solicit or accept customer feedback.  This is the approach that McDonald’s has taken with regard to its Customer E-mail Center Terms and Conditions.  A rationale for this approach is to avoid confusion or conflict of ownership if a customer has the same idea as someone within the organization.  As is the case for other organizations that have adopted this approach, McDonald’s policy is that if a customer ignores McDonald’s request that they not send ideas or suggestions, the customer grants McDonald’s a license to use, copy, and display whatever the customer provides to McDonald’s.  For a variety of reasons, such as the negative public relations associated with not wanting customer suggestions or ideas, most SaaS and software companies do not choose this approach.

“We own your ideas”

At the other end of the spectrum, the recipient of the ideas, authored works, inventions, or processes can take the position that everything that is submitted to the recipient is owned by the recipient.  One sees this approach in a variety of contexts, especially where either contracts or terms of service are not heavily negotiated or where the relevant idea, authored work, invention, or process created will have little value to the creator.  Radiant Systems is an example of this approach.

“We can use your ideas”

Somewhere in between the above two alternatives is the concept that while the creator of the idea, authored work, invention, or process owns it, the recipient has a royalty-free right to use, copy, and display it.  This allows the company to use the customer feedback, but the customer retains ownership of it.  Adobe, Hewlett Packard, SAP, YouTube, and others take this approach with at least some of their offerings and general public feedback.

Ignoring the issue

Sometimes contracts and terms of service ignore the customer feedback issue.  Presumably, this is just an oversight or the companies are taking the position that they at least have an implied license to the feedback.

For many businesses, listening to and incorporating customer feedback into the product or service improvement process not only is good for sound customer relationships but it just makes good business sense.   Similarly, for software and SaaS companies, ensuring that the companies’ contracts adequately address intellectual property ownership and license rights to that customer feedback makes good legal sense.

July 6th, 2011 by Matt Storms | Permalink | No Comments


Bridge Financing Documents

One of the sets of documents that we automated at AlphaTech is the bridge financing documents for an emerging company.  Attached is a sample of the documents: Convertible Note and Subscription Agreement

Instead of just using form documents as most law firms do, robust automation allows us to deliver common document sets for emerging companies in a more efficient manner.  So what else does “robust automation” yield?  It improves document accuracy, provides a valuable knowledgebase from which to draw, and enables us to deliver common document sets to our clients quickly.  It also frees up time of our lawyers to enable them to spend less time on basic contract drafting and more time on activities that afford our clients higher value.

Take for example the attached bridge financing documents.  With a click of a few buttons and filling in of a few blanks, we can change the attached bridge financing document set from a $1,000,000 bridge financing with a single lead investor but with multiple closings and a 20% discount on the next round’s security to a set of documents that includes a $750,000 bridge financing from five investors in a single closing with 30% warrant coverage and a $5 million pre-money cap on the next round’s valuation for conversion purposes.  To quote a client, “that’s neat.”

November 6th, 2010 by Matt Storms | Permalink | 1 Comment


Incentives for 2010 Small Businesses Investments

Last month, President Obama signed the Small Business Jobs Act of 2010 (Act) into law. One of the incentives under the Act effectively eliminates capital gains tax on certain investments in qualified small business stock that are made before the end of 2010. This incentive under Section 1202 of the tax code may help a number of emerging technology companies to close investment deals before year end. As may be expected though, there are both significant requirements to qualify for the tax incentives as well as limitations on the capital gains exclusions. But, a 0% capital gains tax rate is compelling for those who qualify for the Section 1202 tax incentives.

Scope of Investment Incentives

Under the Act, the capital gains from investments made between September 27, 2010 and January 1, 2011 in qualified small business stock are generally not subject to taxation. The total amount of the capital gains that are eligible for exclusion is capped at the greater of $10 million or 10 times the taxpayer’s basis in the stock. The Act also eliminates the alternative minimum tax (AMT) preference for qualified investments, further improving the potential tax benefits to investors who are subject to AMT.

What Investments Qualify for Incentives?

In order to qualify for the limited capital gains tax exclusion for an investment made during the remaining months of 2010, an investment must be made in an entity that has the following characteristics:

  • a C corporation that meets certain active business requirements–no pass-through entities, such as LLCs, S corporations, or partnerships;
  • a “qualified small business,” which means that it must have less than $50 million in assets (parents and their majority-owned subsidiaries are treated as one entity for purposes of the exclusion); and
  • a “qualified trade or business,” which excludes (among others) banking, insurance, financing, leasing, investing, farming, and hotel businesses, and a variety of service businesses (such as those in health, law, consulting, financial services, etc., or any other trade or business where the principal asset of such trade or business is the reputation or skill of its employees).

Likely the most onerous requirement to qualify for the incentives is the holding period for the investment. Generally, stock must be held by the investor for at least five years to qualify. In addition, the investment must be (a) for the purchase of stock directly from the issuer of the stock or through an underwriter, rather than purchasing previously issued stock from an existing shareholder; and (b) acquired in exchange for cash, property (not including stock), or services.

Who Qualifies for the Section 1202 Tax Incentives?

Angel investors, venture capital firms, and individual investors should all be able to take advantage of the small business investment tax break. Corporations are excluded, however. Gains realized by pass-through entities, such as limited liability companies, partnerships, S corporations, and common trusts qualify to the extent that they meet the five-year holding requirement or transfer the stock to the partners in the entity.

What are Some Notable Exclusions to the Section 1202 Tax Incentives?

Certain stock repurchases made by a corporation before the issuance of the stock may disqualify the original investment from the capital gains tax exclusion. Investors may also disqualify themselves from the tax break if they (a) hold a short sale position for the same stock; (b) acquire an option to sell the stock at a fixed price; or (c) enter into a transaction that reduces the risk of holding the investment.

The combination of the potential tax incentives and an expected increase in capital gains tax rates in the near future means the timing of investments may be critical to maximizing potential tax benefits and limiting exposure to tax increases for investors, which should make investing before year more attractive.

October 20th, 2010 by Matt Storms and Paul Page | Permalink | No Comments


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.

Appointment of Secretary of the Meeting

Minutes are traditionally prepared by the corporate secretary as prescribed by most bylaws, but the duty can typically be delegated to another officer or employee, or a lawyer or paralegal from the company’s law firm. The chairman of the meeting can typically appoint a person as “secretary of the meeting.” The secretary of the meeting should take thorough notes during the meeting and convert them to formal minutes as soon as possible after the meeting. Using a laptop with a template for corporate minutes may facilitate capturing the necessary information.

Format of Minutes

Many meeting secretaries struggle with the proper format for corporate board minutes. The company’s attorney or paralegal should be able to provide a template for minutes or attend the meeting and take minutes. Below are the most common components of corporate board minutes:

  • Attendance – Name the directors that were present as well as any officers, employees, investors, and advisors who are present by invitation. Indicate any who participated by phone, video conference, or other electronic means of communicating (most states permit this as long as each of the directors can hear or otherwise interact with one another in real time). Note the names and times that people entered or departed the meeting.
  • Date, Time, and Place of the meeting – Include information as to the date, time, and place of the meeting. If the meeting was conducted by telephone or videoconference, indicate that as well in lieu of the location.
  • Notice and Quorum – State that notice was either properly given according to the company’s bylaws or waived. Confirm that a quorum exists according to the requirements of the company’s bylaws.
  • Chairperson and Secretary – Indicate which individuals served as the chairperson and secretary of the meeting.
  • Approval of Previous Minutes – If applicable, the minutes should reflect review and approval of the minutes from the prior meeting.
  • Business Agenda Items – Summarize topics covered during the meeting in chronological order, citing who gave presentations and who led discussions. Clearly state resolutions approved, regardless of whether they were written by counsel and circulated in advance or whether they were proposed at the meeting. It is typically not necessary to indicate who moved and seconded a proposal. Depending on the state where incorporated, it may not be necessary to identify those dissenting, unless they request that their dissent be noted in the minutes. If no resolution was adopted, but the board authorized or gave guidance to management to take further steps, indicate those.
  • Reports of Board Committee – If the Board has set up committees, such as audit, compensation, nominating and governance, summaries of reports and presentations should be included in the minutes.
  • Adjournment Include a sentence regarding the time the meeting was adjourned.
  • Signature – The secretary of the meeting should sign the minutes after they are approved by the Board or committee, as the case may be.
  • Attachments –Refer to any documents approved and attach them as exhibits to the minutes (e.g., stock option plan, executive employment agreement, lease). If the documents are rather lengthy or it is cumbersome to attach them, at the very least indicate in the minutes that the documents were circulated to the board and, if applicable, that they were circulated in advance of the meeting.

Promptly following the meeting, the secretary should circulate the draft minutes to the directors for review while the meeting is fresh in their minds. At the next meeting, the directors should formally approve the minutes, after agreeing on any suggested corrections. If the minutes are not properly approved, they may not stand up as evidence in court. One Delaware vice chancellor of the court had this to say about a company who suddenly caught up on their minutes and approved several at once: “That tardy, omnibus consideration of meeting minutes is, to state the obvious, not confidence inspiring . . . .”

Style of Corporate Minutes: Level of Detail

Boards take different approaches on what level of detail to include in minutes. The style of minutes of a small charitable organization or social group meeting (you do this and I’ll do that) can be too informal for a startup corporation. On the flip side, a transcript of who said what at a corporate board meeting is overkill.

The main goals of corporate minutes are to clearly memorialize the actions taken at the meeting and to demonstrate that the directors fulfilled their duties of loyalty and care in reaching those decisions. Generally, when describing discussions, the level of detail should reflect the importance of the matter. It is possible to demonstrate due care without revealing details of the back-and-forth in the boardroom. Some ways to show due care include stating: (1) the amount of time a topic was discussed, (2) that an outside expert gave a presentation to the board, and (3) that relevant materials were distributed in advance for consideration. Companies that have a contingent of dissatisfied shareholders may be counseled to include more or less detail, depending on the specifics of the situation. Many companies take a middle-of-the-road approach as to the level of detail in minutes and seek their legal counsel’s advice during unique situations.

Preparing Minutes Becomes a Habit

Preparing and maintaining proper board meeting minutes may seem like corporate drudgery, particularly when you are part of a small corporation. Once you have a format and get into a routine, however, preparing minutes and getting approvals soon becomes second nature.

September 28th, 2010 by Macy Shubak | Permalink | 1 Comment