By Sharon Carroll, Wolters Kluwer CT Corporation
A familiar sight in any office is that bookcase filled with minute books. It is a monument to how most companies have managed their corporate record keeping for years. But in today’s virtual working environment, many companies are reviewing how they track their information and update physical books they may no longer have access to.
Let’s look at standards in recordkeeping and maintaining minute books, and how the shift to virtual recordkeeping is evolving and presenting a better approach.
What Sets The Standards For Corporate Recordkeeping?
The Model Corporation Act (Chapters 16.01 and 16.02) outlines the basics of corporate recordkeeping. It addresses two categories: what records to keep and when and how records can be inspected.
Many states have fully adopted the Model Corporation Act while others have only partially adopted it. In some cases, states have written their own corporate statutes to include additional recommendations for tracking. These state statutes can be found in CT Advantage under the “Business Entity Resources” category (under “Law Summaries”). This is a quick way to reference your local statute as needed.
Other professional organizations may also suggest best practices for how long to retain corporate records. CT Corporation has compiled a sample listing below. As you can see, not all corporate documentation is required to be kept permanently.
What Documents Make Up A Minute Book?
A minute book is composed of a variety of documents. Anything that is driven by the entity should be captured in the minute book.
As a best practice, the minute book should hold all historic and current information about an entity. Any changes or updates should be noted. Minute books become the “map” an entity has followed during its time functioning as an entity and may be referred to in response to a variety of inquiries.
Typically, a minute book holds information that is requested during the due diligence process whether triggered by litigation, financing, audits, historical inquiry, transactions, and so on. Maintaining these records is important. If not, legal counsel would have to revisit and replicate past events, meetings, or changes — a challenging and time-consuming task.
Here are some examples of the documents that would be included:
- Articles/formation documents/amendments
- Shareholder ledger/share transfers
- Stock certificates
- Shareholders agreement
- Meeting minutes
- Annual report filings
- Income tax returns/sales and use tax filings
As new changes occur, or meetings are held it is best to attach to your minute book physically or virtually — according to your preference. The absence of any of these records could expose the shareholders, members, or management to personal liability.
Although we don’t see the “Corporate Record-Keeping Police” stopping by any offices in the U.S., certain international jurisdictions do require that minute books are kept in a specific location and ready for inspection at any time. Given this, be sure to review any international or Canadian record-keeping rules.
What Happens If A Minute Book Is Not Maintained?
If evidence is uncovered that a corporate entity’s actions are not documented in historic or active record keeping, the shareholders, members, and management could lose personal liability protection – a situation referred to as “piercing the corporate veil.”
A critical record-keeping asset, the minute book acts as the documentation that maintains the corporate separateness of an entity and its shareholders and management.
Going Paperless: Virtual Recordkeeping Still Has Its Challenges
Minute books have been steadily shifting to an electronic format for some time. Many companies have converted their minute books and corporate documents into PDFs and stored them in house online. Those that did not are now struggling to locate hard copy documents.
Since the advent of the pandemic, access to documentation stored on-site also has become increasingly challenging. Even documents stored on shared servers present problems such as granting and managing access rights across multiple individuals.
How Do Companies Meet The Challenge Of Conducting Board Business During The Pandemic?
Even as millions of Americans embrace virtual meetings to communicate and stay productive, in many jurisdictions, regularly scheduled in-person Board, Shareholder, and Committee meetings and annual shareholder meetings must now be replaced with virtual substitutes. These meetings are part of the record-keeping documentation and often are approving, amending, and/or discussing topics that should be captured in the minute book. Some states, like Delaware, have long had provisions for remote meetings. Others have taken steps to allow them such as amending their corporate code (NY, CA, NJ, and TX) or have issuing gubernatorial Executive Orders.
However, many states still don’t allow them (AL, AK, AR, GA, IA, NM, SC, and SD).
Where permitted, transfer agents and financial solution providers can assist companies in setting up secure virtual meeting environments.
How hCue Can Help With Corporate Record Keeping
To address the challenges of managing and accessing key legal documentation, many of our hCue subscribers are managing their minute books in their hCue platform. If you aren’t currently using the Documents section of hCue here is how some of our current subscribers are using it.
hCue allows you to easily upload new documents, resolutions, and transactions into a virtual minute book that can be made available to anyone who needs access. The hCue calendar also can be set up to incorporate meeting reminders, attendee tracking, and fee schedules. Plus, board materials can be delivered seamlessly via the Doc Portal.
hCue’s security features, such as role-based security and optional single sign-on, streamline, and help you maintain stricter control over system and document access.
hCue also can be used to generate reports and documents that support the “Inspection of the Minute Book” process. Lists of shareholders, ownership, transactions, addresses, and certificates can be managed in hCue and exported into a report upon request.
Find Out More
Although you may not be using it now please feel free to reach out to your hCue Business Consultant with any questions or to discuss some of the best practices we have seen other customers utilize.
Sharon Carroll is a Compliance Business Consultant with CT Corporation and Compliance Business Consultant with Wolters Kluwer CT Corporation. Based in Chicago, she works with customers to identify their compliance needs and the appropriate CT solution. With more than 20 years’ experience, Sharon has a unique perspective on the common compliance issues companies face.