Corporate Meeting Minutes A Tiny Hole Could Sink A Big Ship

Corporate Meeting Minutes: A Tiny Hole Could Sink a Big Ship

In an old yet still iconic corporate governance “case of the century,” a shareholder derivative litigation in connection with Walt Disney Company’s hiring and subsequent termination of Michael Ovitz, we see that skimping on board minutes pertaining to important corporate decisions can result in extraordinarily costly and painful litigation. A California for-profit corporation needs to perform certain critical tasks to maintain its good standing with state and federal authorities, avoid penalties, and preserve its separate existence as a legal entity. One of these tasks is to maintain “good” meeting minutes. But what distinguishes the “good” meeting minutes from the “bad” ones?  Corporate meeting minutes are an official and permanent record of the actions taken by a corporation’s governing body. Board minutes reflect the discussions held, authorizations granted, and actions taken by the board of directors. The California Corporations Code requires a corporation to keep minutes of the proceedings of the board of directors (Cal. Corp. Code § 1500). Most other states are like California, and have laws on the books that require corporations to keep meeting minutes with other corporate documents and records. Yet, a handful of states leave the responsibility for recording and retaining minutes up to the corporations, some of these states include Delaware and Nevada. While there is no single correct method of drafting and taking meeting minutes, there are certain things that your corporate meeting minutes should include to make them among the “good” ones that will give you the most legal protection if and when a problem arises. Good corporate board meeting minutes are more than a general accounting of board discussions; they serve as an official and legal record of the meeting of the board of directors. The corporate secretary should presume that minutes of board meetings may be produced in litigation. Therefore, it is critical that the secretary ensures that the meeting minutes contain the elements that satisfy the legal test for privilege or confidentiality. One of the key purposes of corporate minutes is to provide direct evidence of the facts described in them, such as:
  • Delegation of authority from the board of directors to corporate officers.
  • Corporate approval of the actions taken, such as approval of transactions with third parties.
  • Satisfying the business judgment rule and offering documentation to support directors’ duty of care by indicating the information that was presented to the directors and that they discussed the matters fully.
Generally, for a corporation’s board of director meeting minutes, the following items are typically known in advance and must be included in the minutes:
  • the date, location and start time of the meeting;
  • the type of meeting (regularly scheduled or special or executive session);
  • whether the meeting is in person or telephonic;
  • a preliminary list of directors expected to be present at the meeting;
  • whether a quorum of directors is to be present;
  • the name of the person serving as secretary of meeting;
  • approval of the minutes of the previous meeting; and
  • the matters to be discussed or approved at the meeting. 
Furthermore, a corporation’s board of director meeting minutes should also include important corporate actions, such as:
  • approving or ratifying major contracts;
  • transferring or assigning personal obligations to the corporation;
  • electing officers;
  • electing directors;
  • hiring key employees;
  • approving or ratifying significant loans or other indebtedness; and
  • qualifying the corporation to do business in other jurisdictions;
  • updating any organizational changes in the management or ownership of the business, including:
    • principal business office;
    • new business offices;
    • directors;
    • committees;
    • officers; and
    • shareholders
Here are some common meeting minute mistakes you should avoid:
  • Forgetting to take attendance and making sure that a quorum is present
The organizational documents of the corporation such as the Articles of Incorporation and By-Laws specify the minimum number of board members that must be present for a board meeting to have a quorum. Or if they are silent, then the relevant state law determines the number of board members required for a quorum. A quorum is the minimum number of directors required at a meeting for the decisions voted on to be valid. If the quorum is not reached, the vote cannot take place at the meeting then the decision cannot be taken and the status quo will be maintained. Taking attendance and making sure that a quorum is present at all meetings is important because without a quorum, the board would only be authorized to take few, if any, actions related to the corporation. Decisions made at meetings without a quorum are subject to challenges.
  • Inaccurate or incomplete record of corporate decisions
As mentioned above, one of the key purposes of corporate meeting minutes is to provide direct evidence of important corporate actions. Meeting minutes that do not accurately reflect the vote of the board of directors have failed their essential purpose. Meeting minutes need to accurately reflect the issue and decision under discussion, at the very least, they should capture the same wordings of resolutions accurately. Therefore, it is important as a standard procedure to have the board review and approve of the minutes of the previous meeting at the beginning of the next meeting. 
  • Failing to record executive sessions
Executive session is a portion of the meeting that is closed to non-directors. California Corporations Code Section 8320(a)(2) requires each corporation to keep minutes of the proceedings of its members, board and committees of the board. Thus, it is required that executive sessions are properly recorded like any other board of director meetings. Executive session is an important tool to help preserve attorney-client privilege in the case of litigation that involves alleged or improper activities and major business transactions. Proper and accurate records of these sessions are particularly important because of the topics that are often involved in these sessions, which include litigations and crisis management. Executive session allows directors to speak openly about relevant issues of these sensitive topics that relate to the CEO or other staff members. At Carbon Law Group we can help you to draft and review legally competent corporate meeting minutes of your business. If you have any questions about how to draft corporate meeting minutes for your corporation, do not hesitate to reach out to us. You can use this link to schedule an appointment to speak with an attorney today. This blog article is published for educational purposes only. Its sole purpose is to give you general understanding of the law and not to provide specific legal advice. By using this website you understand that no attorney client relationship has been established between you and the publisher. Please contact an attorney licensed in your state for competent legal advice.
Corporate Meeting Minutes A Tiny Hole Could Sink A Big Ship

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