The Corporate Minutes Book: The Legal Guide to Taking Care of Corporate Business

by Mancuso, Anthony

• ISBN13: 9780873378192
• ISBN10: 0873378199
• Edition: 2nd
• Format: Paperback
• Copyright: 2002-06-01
• Publisher: Nolo

Table of Contents

Introduction
The Reason for this Book	2	(1)
Which Corporate Decisions Should be Recorded	3	(1)
Why Key Corporate Decisions Should Be Recorded	3	(1)
How to use This Book	4	(1)
When to Consult a Professional	5
Corporate Documents and Laws
Organize Your Corporate Records	2	(3)
State Corproate Filing Offices	5	(1)
Looking Up the Law Yourself	6
When to Use Corporate Meetings, Minutes and Written Consents
Three Ways to Make and Document Formal Corporate Decisions	2	(1)
Questions and Answers about Corporate Meetings, Minutes and Written Consents	3
Preliminary Steps Before Holding a Corporate Meeting
Overview of Corporate Meetings	2	(1)
Steps to Hold a Meeting	2	(1)
How to Hold a Meeting of Your Directors or Shareholders
Step 1. Call and Provide Notice of the Meeting	2	(1)
Step 2. Prepare Agenda for the Meeting	2	(1)
Step 3. Prepare Corporate Resolutions in Advance	2	(1)
Step 4. Get Together to Hold the Meeting	3	(1)
Step 5. Hold a Meeting in Cyberspace if You Have the Equipment and Know-How	3	(2)
Step 6. Appoint a Chairperson and Secretary	5	(1)
Step 7. Chairperson Calls the Meeting to Order	5	(1)
Step 8. Secretary Determines Whether a Quorum is Present	6	(2)
Step 9. Secretary Reads Minutes or Summarizes Business of Last Meeting	8	(1)
Step 10. Officers and Committees Present Reports	8	(1)
Step 11. Handle any Unfinished Business	9	(1)
Step 12. Introduce and Discuss Specific Proposals	9	(2)
Step 13. Take the Votes of Directors or Shareholders	11	(4)
Step 14. Adjourn the Meeting	15
How to Prepare Written Minutes of Shareholders' Meetings
Preparing Minutes of Annual Shareholders' Meetings	2	(9)
Preparing Minutes of Special Shareholders' Meetings	11
How to Prepare Written Minutes of Directors' Meetings
Choosing the Correct Minutes Form for a Directors' Meeting	3	(1)
Preparing Minutes of Annual Directors' Meetings	4	(7)
Preparing Minutes of Special Directors' Meetings	11
How to Hold a Paper Meeting of Your Directors or Shareholders
Decide Whether to Hold a Paper Meeting	2	(2)
How to Prepare Minutes of Paper Meetings	4
How to Take Action by Written Consent Without a Meeting
Step 1. Check Bylaws for Your State's Written Consent Rules	2	(1)
Step 2. Prepare Written Consent Form	3	(3)
Step 3. Place Signed Consent Forms in Your Corporate Records Book	6
Standard Corporate Business Resolutions
When to Use Resolutions in this Chapter	2	(1)
Bank Account Resolutions	3	(5)
Resolution to Adopt Assumed or Fictitious Business Name	8	(2)
Resolution to Approve Contract	10	(1)
Real Property Resolutions	11	(3)
Authorization or Ratification of Employee's Authority	14	(4)
Certification, Affidavit or Acknowledgment of Corporate Decisionmaking or Document	18
Corporate Tax Resolutions
S Corporation Tax Election	3	(5)
Accumulation of Earnings	8	(2)
Section 1244 Stock Plan	10	(2)
Resolution for Approval of Independent Audit	12	(1)
Selection of Corporate Tax Year	13	(2)
Resolution for Payment and Deducation of Corporate Start-Up Costs	15
Resolutions to Amend Corporate Articles and Bylaws
Decide Whether to Amend Articles or Bylaws	3	(1)
Amending Articles of Incorporation	3	(8)
Amending Corporate Bylaws	11
Corporate Hiring and Appointment Resolutions
Hiring and Paying Corporate Employees	3	(3)
Using Independent Contractors	6	(2)
Appointing and Paying Corporate Officers	8	(2)
Compensation for Attending Corporate Meetings	10	(3)
Approval of Indemnification for Corporate Directors, Officers and Employees	13
Director Conflict-of-Interest Resolutions
Approval of Business Between the Corporation and its Directors	2	(3)
Resolutions for Approval of Director Conflict of Interest Transactions	5	(3)
Resolutions for Shareholder Approval	8
Resolutions for Loans to the Corporation
When to Use Corporate Loan Resolutions	2	(2)
Loans to the Corporation by Banks and Other Lending Institutions	4	(7)
Loans to the Corporation by Shareholders and other Insiders	11	(5)
Promissory Notes Overview	16	(3)
Sample Promissory Note Forms	19
Resolutions for Loans by the Corporation to Insiders
Insider Loan Restrictions Under State Law	4	(1)
Tax Considerations and Consequences of Insider Loans	5	(3)
Resolution for Board and Shareholder Approval of Corporate Loan to Insider	8	(2)
Supporting Documentation---Promissory Notes	10	(12)
Release of Promissory Note	22
Employee Fringe Benefits and Business Expense Reimbursement Resolutions
Introduction to Employee Fringe Benefits	3	(2)
Group Health, Accident and Disability Insurance	5	(1)
Self-Insured Medical Reimbursement Plans	6	(3)
Resolution Authorizing Group Term Life Insurance	9	(1)
Authorization of Death Benefit Contract	10	(2)
Payment of Employee Automobile Expenses	12	(3)
Payment of Meals and Lodging	15	(2)
Resolution Authorizing Business Expenses with Corporate Credit or Charge Card	17	(2)
Reimbursement of Employee Business Expenses	19	(6)
Resolution Approving Stock Bonus or Stock Option Plan	25
Corporate Retirement Plan Resolutions
How to Use this Chapter	2	(2)
Overview of Corporate Retirement Plans	4	(7)
Resolutions to Adopt Retirement Plans	11
Stock Dividend Resolutions
Stock Dividend Rules	3	(1)
Stock Dividend Resolutions	4
Stock Issuance Resolutions
Legal and Tax Issues Affecting Stock Issuance	3	(1)
Stock Issuance Resolutions	4
Lawyers, Tax Specialists and Legal Research
How to Find the Right Lawyer	2	(3)
Finding the Right Tax Advisor	5	(1)
How to Do Your Own Legal Research	6
Appendix A Corporate Contact Information
Appendix B Tear-Out Forms
Appendix C How to Use the CD-ROM

Excerpts

Corporate Documents and Laws

A. ORGANIZE YOUR CORPORATE RECORDS 1/2

1. Articles of Incorporation 1/3

2. Bylaws 1/3

3. Minutes of the First Directors' Meeting 1/4

4. Records Showing Stock Was Issued 1/4

5. Minutes of Meetings and Written Consents 1/5

B. STATE CORPORATE FILING OFFICES 1/5

C. LOOKING UP THE LAW YOURSELF 1/6

1. Locate State Corporation Statutes 1/6

2. Look Up Relevant Corporate Statutes 1/7

3. Checking Other Laws 1/7

Calling, providing notice for, holding and voting at meetings of your directors and shareholders necessarily means becoming familiar with a bucketful of new terminology and procedures. While mastering this material isn't difficult, it does require attention to some unfamiliar detail. In this chapter we provide legal and practical background information about basic corporate documents and the state corporation laws on which they are based.

When to skip this material

If you are well organized and feel you understand the purpose of your articles, bylaws and minutes, much of the material in this chapter may seem old hat. If so, you may wish to skip ahead to Chapter 2, where we present an overview of the common methods of corporate decisionmaking, including corporate meetings and written consents.

A. Organize Your Corporate Records

Anyone who sets up a corporation needs to be able to quickly locate key organizational documents. Because these are really the constitution of your corporation, you'll refer to them again and again. When using this book to produce corporate minute and consent forms, we will often refer you to these documents.

If you have not already done so, the best approach is to set up a corporate records book that contains the key documents. You can do this on your own with a three-ring binder, or by using a customized corporate kit designed for the purpose. (You may order a corporate kit through Nolo; see the order form at the back of this book.)

Your corporate records book should contain:

ò articles of incorporation (see Section A1, below)

ò bylaws (see Section A2, below)

ò minutes of the first directors' meeting (see Section

A3, below)

ò stock certificate stubs or a stock transfer ledger

showing the names and addresses of your shareholders,

as well as the number and types of

shares owned by each (see Section A4, below)

ò minutes of annual and special meetings of directors

or shareholders, if any (see Section A5, below),

and

ò written consents.

If someone helped you incorporate, such as a lawyer, accountant, paralegal or financial planner, you probably received copies of these documents in a corporate records book, commonly called a "corporate kit." However, some lawyers attempt to hold on to corporate records in the hope that you will have them take care of all ongoing technicalities. If so, you will need to request a copy of all corporate documents in your client file. (This is your property, so don't take "No" for an answer.)

If you can't locate a copy of your articles, write your Secretary of State's corporate filing office and request a certified or file-stamped copy of your articles (Appendix A lists state corporate filing offices, with addresses and phone numbers). It's a good idea to call first so you can include the correct fee, which should be just a few dollars or so.

1. Articles of Incorporation

The first key organizing document all small business corporations must have is the articles of incorporation. (While most states use the term "articles of incorporation" to refer to the basic document creating the corporation, some states, including Connecticut, Delaware, New York and Oklahoma, use the term "certificate of incorporation." Washington calls the document a "certificate of formation," and Tennessee calls it a "charter.") A corporation comes into existence when its articles of incorporation are filed with the state corporate filing office. The articles normally contain fundamental structural information, such as the name of the corporation, names and addresses of its directors, its registered agent and his or her office address and the corporation's capital stock structure.

For the majority of small corporations, there is no other important information in this document. However, larger corporations sometimes adopt articles containing special provisions that impact future decisionmaking processes of the corporation.

Example: The Equity Investors Capital Corporation adopts articles that contain a multi-class stock structure consisting of Class A voting shares and Class B nonvoting shares. A special article requires a vote of two-thirds of each class of stock for the approval of amendments (future changes) to the corporation's articles or bylaws.

To prepare and file articles for a new corporation

If you have not yet formed your corporation, Nolo publishes several state-specific books and software that show you how to prepare and file articles with the state's corporate filing office, and take other incorporation steps such as issuing stock under state securities laws. If you want to incorporate in California or Texas, see Nolo's How to Form Your Own Corporation series. In other states, see Incorporate Your Business (Nolo). If you want information on preparing and filing articles only, your state's corporate filing office may provide samples and instructions for drafting your own articles. Except in South Carolina, you do not need to involve an attorney. (Appendix A lists the name and address of the corporate filing office in your state.)

2. Bylaws

The bylaws of a corporation are its second most important document. You do not file bylaws with the state-they are an internal document that contains rules for holding corporate meetings and other formalities according to state corporate laws.

Bylaws typically specify the frequency of regular meetings of directors and shareholders and the call, notice, quorum and voting rules for each type of meeting. They usually contain the rules for setting up and delegating authority to special committees of the board, the rights of directors and shareholders to inspect the corporate records and books, rights of directors and officers to insurance coverage or indemnification (reimbursement by the corporation for legal fees and judgments) in the event of lawsuits, plus a number of other standard legal provisions.

Use bylaws over articles for common or changeable rules

State law often gives corporations a choice as to whether to place corporate operating rules and procedures in the articles of incorporation or bylaws. If you have a choice, it's always best to use the bylaws, because you can change them easily without the need for filing changes with the state. For example, many states allow you to place super-majority quorum or voting rules for directors' or shareholders' meetings in either document. If you use the bylaws for this purpose, since less-stringent vote requirements normally apply to the amendment of bylaws, you can much more easily change these provisions. In contrast, if you change provisions in your articles later, a formal amendment to the articles must be filed with your state's corporate filing office.

Because the corporation laws of all states are subject to change, it's possible that bylaws that were valid when adopted will later go out of date. Fortunately, major changes to corporate laws happen only every decade or two, when states modernize their corporate statutes. Nonetheless, if your corporation has been in existence for a few years and you plan a major corporate decision such as the issuance of a new class of shares, declaration of a dividend or purchase of shares from a shareholder, it's wise to make sure your bylaw provisions are up-to-date by checking your state's current business corporation act. See Section D, below, where we discuss how to look up the law yourself.

If you haven't prepared bylaws

Some corporations may have been formed in a hurry, by filing articles of incorporation only. If that is your case, you need to take the extra step of preparing basic bylaws for your corporation. Again, if your corporation was formed in California, you can use Nolo's How to Form Your Own California Corporation to prepare statespecific bylaws for your corporation. Or, see Nolo's Incorporate Your Business (national).

3. Minutes of the First Directors' Meeting

When most businesses incorporate, they prepare minutes of the first meeting of the corporation's board of directors or of the incorporators (the person or persons who signed and filed the articles on behalf of the corporation). This meeting is usually referred to as the organizational meeting of the corporation. Minutes are simply a formal record of the proceedings of a meeting. The organizational meeting is usually held to approve standard items of business necessary for a new corporation to begin doing business.

Look through the minutes of your organizational meeting. These minutes are designed to document the essential organizational actions taken by the board or the incorporators. They typically show:

ò the beginning tax elections made by the corporation-for

example, the selection of the

corporation's accounting period and tax year

ò details of the corporation's first stock issuance

ò approval of stock certificates and a corporate

seal, and

ò approval of other beginning business of the corporation,

such as the opening of a corporate

bank account.

Knowing some of this information may be essential to making informed corporate decisions later.

If you don't have organizational minutes

Some corporations, especially those created in a rush, simply didn't prepare minutes of the first meeting of the board of directors or incorporators. If you don't have these minutes, don't worry about it. You'll normally do fine without them.

4. Records Showing Stock Was Issued

A new corporation almost always issues stock to record the ownership interests of the persons who invest in the corporation. Most smaller corporations issue stock for cash, property or the performance of services that were rendered in forming the corporation. Many states prohibit the issuance of shares in return for a promise to pay for the shares later (in return for a promissory note) or for a promise to perform future services. If a small existing business is being incorporated, the business owners are normally issued shares in return for the transfer of business assets to the new corporation.

Example: Just Friends, a partnership, incorporates as Just Friends, Inc. Each of the three prior business owners owned an equal one third interest in the partnership. After the transfer of the partnership assets to the corporation, each owner is issued one third of the shares issued by the corporation (3,000 shares are issued, so each owner receives 1,000 shares in the new corporation).

If you haven't issued stock or didn't keep written records showing who owns shares, you should do so now. Stock certificates and stock transfer ledgers are available in most office supply stores or can be purchased through Nolo. (See the corporate kit order form at the back of this book.)

Once you've organized your corporate records book, remember that while a corporate records book makes it easy for you to keep all key documents in one place, it won't work unless you consistently use it.

5. Minutes of Meetings and Written Consents

If your corporation has been in existence for some time, you may have records of annual and perhaps special corporate meetings. This is especially likely if a lawyer helped you incorporate. Check your corporate records, or contact your attorney if you don't have copies. Again, remember that you have a right to these records.

B. State Corporate Filing Offices

Each state has a corporate filing office where you pay a fee and file paperwork for creating corporations, changing the corporate structure and dissolving corporations.

A listing of the name, address and telephone number of the office in each state where corporate documents are filed is provided in Appendix A. The 50 different states use slightly different names for the office where corporate filings are made. Most commonly, corporations are formed with and supervised by the Secretary of State or Department of State office. The department within this bureaucracy that handles corporate filings is commonly designated as the Corporations Division or Corporations Department.

For example, corporate filings in Illinois are made with the Secretary of State's Department of Business Services. In Pennsylvania, corporate filings are made with the Corporation Bureau, which is part of the Department of State's office. And in California, corporate documents are filed with the Business Programs Division of the Secretary of State's office.

Corporation filing offices are sometimes further divided into offices that oversee special areas of concern, such as corporate filings (for example, articles of incorporation or amendments to articles), corporate name availability, corporate fee information and corporate legal counsel. Don't be put off by this seeming structural complexity. If you need information, you'll normally find there is one phone number at the corporate filing office devoted to handling corporate inquiries from the public.

Throughout this book, we refer to the office that accepts corporate filings as the state corporate filing office, whether this office is formally designated as the Secretary of State office or by some other title.

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Excerpted from The Corporate Minutes Book by Anthony Mancuso Copyright © 2002 by Anthony Mancuso
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.