While seemingly trivial, meeting minutes are a crucial recordkeeping tool for a business of any size. Documenting substantive corporate action, including budget approvals and the election of officers and directors, by means of corporate minutes is both a legal requirement (in most states) and a smart business practice for business owners and officers alike.
Irrespective of an entity’s size, the maintenance of accurate, complete and updated minutes is an important step in formalizing and implementing business action, as it:
1) Bolsters the corporate shield against personal liability.
Observing corporate formalities is required to realize the liability protection offered by the “corporate veil.” If the officers, directors, shareholders, managers, members and other similarly situated individuals fail to observe corporate formalities and maintain accurate and complete corporate records, they may be subjected to personal liability for the actions and obligations of the entity itself.
2) Eases response efforts to IRS audits.
From time to time, the IRS, as part of its audit process, will request to review an entity’s minute book to review authorized and documented corporate action. As memories fade, it becomes a time-consuming and burdensome task to reconstruct documented action over several years if the corporate minute book is not regularly maintained. In order to expedite and ease IRS audit response efforts, an entity should routinely update and maintain accurate records with regard to its dealings and approvals.
3) Provides evidence of proper action by officers and directors.
Officers and directors have fiduciary duties to the entity in which they serve. In the event a decision is later questioned, the corporate minutes may serve as evidence in favor of the officers and directors, suggesting that their actions were in compliance with their fiduciary obligations.
4) Meets legal and operational requirements for effectuating corporate action.
Many state statutes require that, at a minimum, annual meeting minutes are kept and maintained by an organization. In addition, however, an entity’s organizational documents, such as the bylaws, operating agreement or partnership agreement, may require the approval of certain corporate actors prior to implementing corporate action. As an example, many bylaws or operating agreements require the approval of the owners and/or directors in order to engage in a certain transaction or to amend the entity’s organizational documents. As such, meeting minutes are an effective tool to document such approval.