Corporate and LLC Meetings, Minutes & Resolutions

Corporate and LLC Meetings, Minutes & Resolutions

Business owners are often advised on the importance of holding annual meetings, documenting their minutes, and exercising proper corporate formalities as a method of preventing the “piercing of the corporate veil.”

However, although many people know they should be holding meetings and doing their minutes, our experience with new business owners who do not have a history of being in the “corporate” world or serving on a “board of directors” is often a feeling of confusion and cluelessness as to what meetings and minutes are and what purposes they serve.

Although the general purpose of meetings, minutes and resolutions are to document and authorize acts taken by an entity, company meetings can accomplish several other important goals that we feel are critical to a business’s long term success, for example:

  • Strengthen the corporate veil and asset protection
  • Document goals and objectives of the business
  • Structure tax planning and establish bookkeeping procedures
  • Create a great reason for a tax deductible trip (at least annually)
  • Increase communication between the business owners
  • Involve the family members and teach them about the operations of the business

Now before we discuss the meetings that can or need to take place, it’s important to understand the structure of a company or entity.

In a corporation, you have a hierarchy that consists of shareholders that own the corporation, directors that establish the major policies and decisions for the corporation, and officers (President, CEO, Secretary, etc.) that perform and execute the daily activities for the corporation. In this three level vertical hierarchy, officers are appointed by the directors who are in turn appointed by the shareholders.

In a Limited Liability Company or LLC, it’s a bit simpler in that you have Members that own the LLC and Managers that operate the day to day transactions.   The Managers are appointed and serve under the authority of the Members.

This illustration below depicts the standard structure of both corporations and LLCs:

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In a corporation, there are generally two types of meetings; “Shareholder meetings” and “Board of Director meetings”.  In a small business, they are generally the same, but as I discuss further below you may expand the ‘board’ to include family members and others to help you succeed (watch the video “Building your Board of Directors or Advisors” below).

In an LLC, I also feel strongly there are two types of meetings; “Member meetings” and “Board of Advisor meetings”. There is nothing that says you can’t have a Board of Advisors in an LLC and we actually include this provision in the LLCs we create at our law firm. We want to encourage our clients to build these ‘boards’ to get support and help to run their businesses.

What’s in a “Meeting”?

While the items that should be discussed and documented in the meeting will depend on the situation, in general, items discussed in a meeting and documented in minutes should include the following:

  • Any Important Changes to your Business during the period since the last meeting, especially any changes to the corporate structure, ownership, management, key employees, company policy, governing documents, etc.;
  • Any transactions or actions that require “consent,” “vote” or are otherwise required to be approved as required in the governing documents for the entity or under the laws of the state; and
  • Major transactions for the company that are beyond what typically occurs in the day to day operations of the business (i.e. obtaining a loan, purchasing major assets, entering into a major contract, dissolving the corporation, etc.).

This list is not intended to be exhaustive. Conducting your meetings and keeping minutes should not be considered a burden and we often encourage our clients to keep it as simple as possible, but that will depend on the type of transaction, size of the entity, and whether there is any disagreement among the attendees.

The ‘Minutes’ are the notes or records of the meeting. For example, who attended, what the votes were, suggestions, discussions, problems, and decisions.

Corporate resolutions, when documented properly, are literally the ‘decisions’ from the meeting. The resolutions confirm that certain transactions performed by the officers (in a corporation) have been authorized and approved by the directors, and in some cases, actions taken by the directors have been approved by the shareholders.

Similarly for an LLC, minutes confirm that actions taken by the Managers have been approved by the Members. People who have ever tried to purchase or sell real estate through an entity often have lenders or escrow officers ask them for corporate resolutions approving the transaction. The purpose of this is so they (lenders or escrow) have signed documentation confirming that the one person that is signing the contract or deed in the transaction does actually have the approval of the other major decision-makers within that entity. Others entities that have been audited will know that the IRS often asks for meeting minutes as part of an audit.

Is it required?

In general, corporations are required to hold at least one annual meeting per year. We encourage business owners hold the same meetings and meeting for LLCs. Although, many states don’t require that LLCs have such formalities, it is highly recommended in the legal industry for business owners to go through this process to strengthen the ‘veil’ of the LLC. It also encourages good recordkeeping, and can serve to enhance communication in the business. Moreover, there’s nothing wrong with doing more than the bare minimum that the law requires- it just makes good sense.

Is there an official procedure or process?

The procedure for the meetings and minutes can vary and is, in part, dependent on the language in the documents governing your entity (e.g. by-laws for corporations and operating agreement for LLCs). The laws of the state also set forth procedures when corporate/LLC records are lacking the particulars.

In most cases, there must first be official notice of the meeting that in many cases must conform with certain requirements, which can also be waived by those attending or not attending if properly documented. Next, there is typically a requirement for a certain number of attendees (i.e. a quorum) in order to conduct a valid meeting. When the meeting is held, the minutes are essentially notes of what happened in the meeting. The minutes should include who attended the meeting and when and where the meeting occurred. A “resolution” is a formal decision or act by the attendees of the meeting which also should also be documented in the minutes.

Involve the family and take advantage of a tax write-off

Building a Board and involving family is critical for success. For more information on this see my prior article “Setting up a Board of Directors or Advisors”.

It’s very common for small business owners to have their adult children, and even teenagers participate on the Board of Directors of a Corporation or Board of Advisors for a Limited Liability Company (LLC). This is a fantastic opportunity to teach the children about the business and even basis entrepreneurship skills. Business owners should take the time to discuss finances, operations, potential growth and even the dynamics of employees or vendors and the impact they have on the business.

Moreover, the ‘meeting’ is a great opportunity to take a tax deduction. There is nothing wrong with an annual or semi-annual get-a-away to discuss the business. As long as it’s not extravagant and there is a valid meeting and discussion, the travel, dining and accompanying entertainment expense with the meeting can be justifiable on a tax return.

Take it seriously

Finally, those business owners that only consist of themselves or their spouses may find it silly to engage in what could be perceived as a pointless exercise in holding meetings or preparing minutes with ourselves.   We believe adhering to these formalities are even more important when there is only one owner or director since an entity with just a single owner operating the company is under even more threat of being accused that their personal and their corporate identities have been merged (and therefore the corporate veil should be pierced). This is especially true in the case of money transactions between the single owner and the corporation which, if not properly documented, could be deemed comingling of funds or result in unfavorable treatment by the IRS.

Holding your meetings and documenting your minutes if often a private affair within your corporation and think of it like your insurance policy.   You hope that you never need it, but in the event of a lawsuit or an audit, you’ll be glad that you have it.

Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”  and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at [Written in collaboration with Lee Chen, Attorney, KKOS- Irvine, California]

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