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. Continue reading →

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. Continue reading →

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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