The AllBusiness.com Practical Guide to Documenting Corporate Actions and Corporate Minutes

The AllBusiness.com Practical Guide to Documenting Corporate Actions and Corporate Minutes

Overview

The purpose of this Guide is to discuss the procedures newly formed and emerging California corporations (the forms in here may be helpful to non-California corporations) should follow in the holding and documenting of Board of Directors and Shareholders' Meetings and Written Consents. Summaries, with attached forms, are provided to assist in following corporate formalities. Adherence to such formalities reduces the possibility that individual shareholders will be liable for the acts of the corporation. Because the information in this handbook is general in nature, it should not be exclusively relied upon when completing any of the discussed procedures, but rather, should be used as a general guide. State laws differ as to what types of consents or actions must be taken for various transactions. Additional or different documentation may be advisable depending on the circumstances. Furthermore, corporate or securities laws may impact on action to be taken. Consultation with counsel is advisable for more complicated issues.

Shareholders' Meetings

California corporation law requires that shareholders meet at least annually to elect directors and to conduct other shareholder business. Shareholder action by written consent is a permissible alternative to a meeting if the consent process satisfies statutory requirements and applicable Bylaw provisions. (See Exhibit A.)

Unless the Articles of Incorporation state otherwise, a majority of the shares entitled to vote establishes a quorum. Shareholder action generally requires that a majority of the shares establishing the quorum at the meeting vote affirmatively for the action (although some actions require the vote of a majority of all outstanding shares). The corporation must give shareholders advance written notice of any meeting at which the shareholders are required or permitted to vote. The notice should specify each matter to be voted upon by the shareholders. (See Exhibits B and C.) To complete corporate formalities regarding notice to shareholders of meetings, a declaration of mailing of the notice signed by the secretary, assistant-secretary, or transfer agent can be executed. (See Exhibit D.) If a shareholders' meeting is held without notice, a waiver of notice and consent to holding the meeting must be given by the shareholders. (See Exhibit E.)

The date and time of the annual meeting should be set forth, or otherwise provided for, in the corporation's Bylaws. State corporate law governs when annual meetings must be held. If a meeting is not timely held, a shareholder may apply to the superior court for an order demanding that the meeting be held.

Special meetings of shareholders may generally be called any time shareholder discussion or action is required or appropriate. Generally, they may be called by a vote of the Board of Directors, the Chairman of the Board of Directors, the President of the corporation, the holders of shares entitled to cast at least ten percent of the votes at the meeting, or other persons authorized in the Articles, Bylaws, or in any shareholders' agreement.

A corporation must keep minutes and records of proceedings of its shareholders. California law requires that the minutes be open for inspection by any shareholder or director. Properly recorded minutes should identify the issues before the shareholders and actions adopted. (See Exhibit F.) The minutes, together with copies of the notice of the meetings or waivers thereof and the affidavit of mailing of the notice, should be placed in the corporation's minute book. Full observance of corporate formalities demands that the minutes contained in the corporate minute books, either in original form or a copy, be signed or certified by the Secretary or other appropriate officer of the corporation. Written consents of shareholders to action taken without a meeting should also be filed in the corporation's minute book.

Some of the actions for which shareholder approval may be required or desirable include the following:

• Merger or reorganization of the corporation.
• Amendment of the Articles of Incorporation.
• Sale or transfer of all or substantially all of the corporation's assets.
• Approval of contracts with interested directors.
• Authorization of indemnity of a corporate agent for liability incurred when acting on behalf of the company.
• Issuance of certain securities.
• Adoption of stock option plans.
• Winding up or dissolution of the corporation.

Board of Directors' Meetings

The number and frequency of meetings of the Board of Directors largely depends on the nature and extent of the corporation's business and the Board's necessity to vote on required action. An organizational meeting of the Board is typically held shortly after incorporation, where the Board appoints initial officers, authorizes the sale of stock, and authorizes other organizational matters.

An annual meeting of the Board is also customarily held after the Annual Meeting of Shareholders at which new directors are elected. Primarily, the focus of the annual meeting is the election of the corporation's officers for the following year, appointment of Board committees, and establishing meeting dates for the ensuing year.

In addition to the annual meeting, the Board may hold regular or special meetings. Regular meetings are established in the corporation's Bylaws, or are fixed by the Board, and do not require notice. When corporate business necessitates it, special meetings, which require notice, [1] may be called by the Secretary, Chairman of the Board, the President or other authorized people described in the Bylaws of the corporation. (See Exhibit G.) To complete corporate formalities with respect to notice to directors of Board meetings, an affidavit of mailing of the notice signed by the Secretary, Assistant Secretary, or transfer agent can be executed. (See Exhibit H.) If a Board of Directors' Meeting is held without notice, a waiver of notice and consent to holding the meeting must be given by the directors who did not attend the meeting. (See Exhibit H.)

Director action by written consent is generally a permissible alternative to a meeting if Board members unanimously consent to the actions in writing. (See Exhibit J.)

Participation of directors at a meeting may either be by conference telephone or in person. Unless the Bylaws or Articles of Incorporation provide otherwise, [2] a quorum is a majority of the authorized number of directors. The ordinary requirement for Board action is the vote of a majority of the directors present at a meeting at which a quorum is present. Unlike shareholder voting requirements, this requirement cannot be relaxed by the Articles or Bylaws. If, initially, a quorum is present and subsequently lost because some directors leave the meeting, action may still be taken by vote of a majority of the quorum required for the meeting. Exceptions to the above may exist under individual circumstances...

[1] Special meetings of the Board in California require either four days' notice by mail or 48 hours notice delivered personally or by telephone or telegraph, unless otherwise mandated in the Bylaws.

[2] The Bylaws or Articles of Incorporation of a California corporation cannot set a number that is less than one third the authorized number or two directors, whichever is larger, except in a one-director corporation.