The Corporate Records Handbook By Attorney Anthony Mancuso Meetings, Minutes & Resolutions 4th edition Fourth Edition JULY 2007 Editor DIANA FITZPATRICK Book Design SUSAN PUTNEY Cover Design SUSAN WIGHT Proofreader SUSAN CARLSON GREENE CD-ROM Preparation ELLEN BITTER Index THÉRÈSE SHERE Printing DELTA PRINTING SOLUTIONS, INC. Mancuso, Anthony. e corporate records handbook : meetings, minutes & resolutions / by Anthony Mancuso. 4th ed. p. cm. ISBN-13: 978-1-4133-0656-9 (pbk.) ISBN-10: 1-4133-0656-X 1. Corporation law United States Popular works. 2. Corporate meetings Law and legislation United States Popular works. 3. Business records Law and legislation United States Popular works. I. Title. KF1414.6.M36 2007 346.73'0664 dc22 2007003648 Copyright © 1998, 2002, 2005, and 2007 by Anthony Mancuso. ALL RIGHTS RESERVED. PRINTED IN THE USA. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission. Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use. Quantity sales: For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. For academic sales or textbook adoptions, ask for Academic Sales. Call 800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, CA 94710. About the Author Anthony Mancuso is a corporations and limited liability company expert. He graduated from Hastings College of Law in San Francisco, studies advanced business taxation at Golden Gate University in San Francisco, and is an active member of the California State Bar. Mr. Mancuso writes books and programs software in the fields of corporate and LLC law. He has been a consultant for Silicon Valley EDA (Electronic Design Automation) companies working on C++ software project teams. Mr. Mancuso is the author of Nolo’s bestselling titles on forming and operating corporations (both profit and nonprofit) and limited liability companies. His titles include Incorporate Your Business (national and California editions), How to Form a Nonprofit Corporation (national and California editions), Form Your Own Limited Liability Company, and LLC or Corporation? He researched, wrote, and programmed LLCMaker and Incorporator Pro software programs, published by Nolo, which generate state-by-state articles and other forms for organizing corporations and LLCs in each of the states. His books and software have shown over a quarter of a million businesses and organizations how to form an LLC or a corporation. He also is a licensed helicopter pilot and performs as a guitarist in various musical idioms, including jazz and blues. Table of Contents Your Legal Companion for e Corporate Records Handbook 1 Corporate Documents and Laws Organize Your Corporate Records 4 State Corporate Filing Offices 8 Looking Up the Law Yourself 8 2 When to Use Corporate Meetings, Minutes, and Written Consents ree Ways to Make and Document Formal Corporate Decisions 12 Questions and Answers About Corporate Meetings, Minutes, and Written Consents 13 3 Preliminary Steps Before Holding a Corporate Meetings Overview of Corporate Meetings 22 Steps to Hold a Meeting 22 4 How to Hold a Meeting of Your Directors or Shareholders Step 1. Call and Provide Notice of the Meeting 46 Step 2. Prepare Agenda for the Meeting 46 Step 3. Prepare Corporate Resolutions in Advance 46 Step 4. Get Together to Hold the Meeting 47 Step 5. Hold a Meeting in Cyberspace If You Have the Equipment and Know-How 47 Step 6. Appoint a Chairperson and Secretary 49 Step 7. Chairperson Calls the Meeting to Order 49 Step 8. Secretary Determines Whether a Quorum Is Present 50 Step 9. Secretary Reads Minutes or Summarizes Business of Last Meeting 52 Step 10. Officers and Committees Present Reports 52 Step 11. Handle Any Unfinished Business 54 Step 12. Introduce and Discuss Specific Proposals 54 Step 13. Take the Votes of Directors or Shareholders 56 Step 14. Adjourn the Meeting 59 5 How to Prepare Written Minutes of Shareholders’ Meetings Preparing Minutes of Annual Shareholders’ Meetings 62 Preparing Minutes of Special Shareholders’ Meetings 72 6 How to Prepare Written Minutes of Directors’ Meetings Choosing the Correct Minutes Form for a Directors’ Meeting 83 Preparing Minutes of Annual Directors’ Meetings 84 Preparing Minutes of Special Directors’ Meetings 92 7 How to Hold a Paper Meeting of Your Directors or Shareholders Decide Whether to Hold a Paper Meeting 100 How to Prepare Minutes of Paper Meetings 102 8 How to Take Action by Written Consent Without a Meeting Step 1. Check Bylaws for Your State’s Written Consent Rules 110 Step 2. Prepare Written Consent Form 111 Step 3. Place Signed Consent Forms in Your Corporate Records Book 114 9 Standard Corporate Business Resolutions When to Use the Resolutions in this Chapter 116 Bank Account Resolutions 117 Resolution to Adopt Assumed or Fictitious Business Name 123 Resolution to Approve Contract 125 Real Property Resolutions 126 Authorization or Ratification of Employee’s Authority 129 Certification, Affidavit, or Acknowledgment of Corporate Decision Making or Document 134 10 Corporate Tax Resolutions S Corporation Tax Election 138 Accumulation of Earnings 144 Section 1244 Stock Plan 146 Resolution for Approval of Independent Audit 149 Selection of Corporate Tax Year 150 Resolution for Payment and Deduction of Corporate Organizational Costs 152 11 Resolutions to Amend Corporate Articles and Bylaws Decide Whether to Amend Articles or Bylaws 157 Amending Articles of Incorporation 157 Amending Corporate Bylaws 166 12 Corporate Hiring and Appointment Resolutions Hiring and Paying Corporate Employees 171 Using Independent Contractors 175 Appointing and Paying Corporate Officers 177 Compensation for Attending Corporate Meetings 179 Approval of Indemnification for Corporate Directors, Officers, and Employees 181 13 Director Conflict of Interest Resolutions Approval of Business Between the Corporation and Its Directors 186 Resolutions for Approval of Director Conflict of Interest Transactions 189 Resolutions for Shareholder Approval 192 14 Resolutions for Loans to the Corporation When to Use Corporate Loan Resolutions 198 Loans to the Corporation by Banks and Other Lending Institutions 200 Loans to the Corporation by Shareholders and Other Insiders 207 Promissory Notes Overview 213 Sample Promissory Note Forms 216 15 Resolutions for Loans by the Corporation to Insiders Insider Loan Restrictions Under State Law 233 Tax Considerations and Consequences of Insider Loans 235 Resolution for Board and Shareholder Approval of Corporate Loan to Insider 238 Supporting Documentation—Promissory Notes 240 Release of Promissory Note 254 16 Employee Fringe Benefits and Business Expense Reimbursement Resolutions Introduction to Employee Fringe Benefits 257 Group Health, Accident, and Disability Insurance 258 Self-Insured Medical Reimbursement Plans 260 Resolution Authorizing Group Term Life Insurance 263 Authorization of Death Benefit Contract 264 Payment of Employee Automobile Expenses 266 Payment of Meals and Lodging 269 Resolution Authorizing Business Expenses With Corporate Credit or Charge Card 271 Reimbursement of Employee Business Expenses 273 Resolution Approving Stock Bonus or Stock Option Plan 280 17 Corporate Retirement Plan Resolutions How to Use is Chapter 283 Overview of Corporate Retirement Plans 284 Resolutions to Adopt Retirement Plans 292 18 Stock Dividend Resolutions Stock Dividend Rules 298 Stock Dividend Resolutions 301 19 Stock Issuance Resolutions Legal and Tax Issues Affecting Stock Issuance 310 Stock Issuance Resolutions 312 20 Lawyers, Tax Specialists, and Legal Research How to Find the Right Lawyer 330 Finding the Right Tax Adviser 333 How to Do Your Own Legal Research 335 A Appendix A: How to Use the CD-ROM Installing the Form Files Onto Your Computer 340 Using the Word Processing Files to Create Documents 340 List of Files Included on the Forms CD 343 B Appendix B: Corporate Contact Information C Appendix C: Corporate Minutes Forms Notice and Minutes Forms Meeting Summary Sheet Call of Meeting Meeting Participant List Notice of Meeting Acknowledgment of Receipt of Notice of Meeting Proxy Certification of Mailing Minutes of the Annual Meeting of Shareholders Minutes of Special Meeting of Shareholders Minutes of the Annual Meeting of Directors Minutes of Special Meeting of Directors Waiver of Notice of Meeting Approval of Corporate Minutes Cover Letter for Approval of Minutes of Paper Meeting Written Consent to Action Without Meeting Standard Corporate Business Resolutions Authorization of Treasurer to Open and Use Accounts Authorization of Treasurer to Open and Use Specific Corporate Account(s) Authorization of Corporate Account and Designation of Authorized Signers Authorization of Rental of Safe Deposit Box Adoption of Assumed Name Board Approval of Proposed Contract Approval of Lease Purchase of Real Property Authorization of Sale of Real Property Delegation of Authority to Corporate Employee Director Ratification of Employee’s Acts Board Ratification of Contract Rescission of Authority of Employee Shareholder Ratification of Decisions or Acts Certification of Board or Shareholder Action Affidavit of Corporate Decision Making Acknowledgment Corporate Tax Resolutions S Corporation Tax Election S Corporation Shareholders’ Agreement Accumulation of Corporate Earnings Qualification of Shares Under Internal Revenue Code Section 1244 Approval of Independent Audit of Corporate Financial Records Approval of Corporate Tax Year Payment and Deduction of Organizational Expenses Resolutions to Amend Corporate Articles and Bylaws Approval of Amendment to Articles of Incorporation Approval of Restatement of Articles of Incorporation Amendment of Articles Form Approval of Amendment of Bylaws Corporate Hiring and Appointment Resolutions Approval of Hiring of Corporate Employee Approval of Bonuses and Salary Increases Shareholder Ratification of Employee Pay Approval of Independent Contractor Services Appointment of Corporate Officers Authorization of Payment for Attending Meetings Annual Director or Officer Stipend for Attendance at Meetings No Compensation for Attending Corporate Meetings Indemnification and Insurance for Directors and Officers Director Conflict of Interest Resolutions Board Approval of Transaction Benefiting a Director Directors’ Written Consent to Transaction Benefiting a Director Shareholder Approval of Transaction Benefiting a Director Shareholder Written Consent to Transaction Involving a Director Resolutions for Loans to the Corporation Authorization of Loan at Specific Terms Authorization of Maximum Loan on General Terms Unlimited Authorization of Loans for Business Needs Authorization of Line of Credit Authorization of Line of Credit With Cap on Each Transaction Authorization of Loan Terms Secured by Corporate Property Resolution Approving Loan to Corporation Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Secured by Corporate Property Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) With Balloon Payment Promissory Note: Periodic Payments of Interest With Lump Sum Principal Payment Promissory Note: Lump Sum Payment of Principal and Interest at Specified Date Promissory Note: Lump Sum Payment of Principal and Interest on Demand by Noteholder Promissory Note: Variable Schedule of Payments of Principal and Interest Resolutions for Loans by the Corporation to Insiders Approval of Corporate Loan to Insider Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) Secured by Property Promissory Note: Installment Payments of Principal and Interest (Amortized Loan) With Balloon Payment Promissory Note: Periodic Payments of Interest With Lump Sum Principal Payment Promissory Note: Lump Sum Payment of Principal and Interest at Specified Date Promissory Note: Lump Sum Payment of Principal and Interest on Demand by Noteholder Promissory Note: Variable Schedule of Payments of Principal and Interest Release of Promissory Note Employee Fringe Benefits and Business Expense Reimbursement Resolu tions Authorization of Group Health, Accident, or Disability Insurance for Employees Adoption of Self-Insured Medical Reimbursement Plan Purchase of Group Term Life Insurance Authorization of Employee Death Benefit Agreement Regarding Death Benefits Purchase or Lease of Company Car Authorization of Payment of Standard Mileage Allowance to Employees Business Meal Expense Allotment for Employees On-Premises Meals and Lodging to Employees Authorization of Corporate Credit and Charge Cards for Employees Reimbursement of Actual Travel and Entertainment Expenses to Employees Under Accountable Reimbursement Plan Reimbursement of Actual Travel and Entertainment Expenses to Employees Under Nonaccountable Reimbursement Plan [...]... directors’ meetings, because both are required to be held annu­ ally under provisions of the bylaws of the corporation Of course, Saul and Barbara plan to reelect each other to the board again this year, and they discuss and plan corporate operations all the time So their annual meetings are held on paper only They prepare minutes for each of these paper meetings and place them in the corporate records. .. directors’ and shareholders’ meetings These meetings are usually scheduled in the corporation’s bylaws The annual shareholders’ meeting is held first, in order to elect the board for the upcoming year After the shareholders’ 14 | the corporate records handbook meeting, and usually on the same day, the annual directors’ meeting is held At this meeting, the directors accept their positions for the upcoming... state corporate laws Bylaws typically specify the frequency of regular meetings of directors and shareholders and the call, notice, quorum, and voting rules for each type of meeting They usually contain the rules for setting up and delegating authority to special committees of the board, the rights of directors and shareholders to inspect the corporate records and books, the rights of directors and officers... Real Meeting With Minutes Your directors or shareholders and all interested parties get together in a real meeting and discuss and vote on items of corporate business During or after the meeting, written minutes are prepared showing the date, time, place, and purpose of the meeting and the decisions (resolutions) approved by the board of directors or shareholders Chapters 3 and 4 cover the steps necessary... kept in the corporate records book, to indicate that directors and shareholders made necessary decisions Chapter 8 covers the procedure and forms necessary to obtain director and shareholder approval by written consent Questions and Answers About Corporate Meetings, Minutes, and Written Consents The questions and answers below shed light on the advantages and disadvantages of each of the three corporate. .. annual meetings Instead, the secretary of the corporation pre­ pares minutes for a paper meeting showing the election of the board plus any other business the shareholders and directors agree upon in advance Example: Windows, Drapes, Sofas and Ottomans, Inc., is a closely held corporation owned and run by Saul and Barbara, a married couple They prepare minutes for the corporation’s annual shareholders’ and. .. contain these provisions Commercial Code The state’s commercial code contains the rules for entering into and enforcing commercial contracts, promissory notes, and other standard commercial documents Other state and local laws Various state laws may impact the activities and operations of all businesses, whether or not they are incorporated For example, state and local building codes, professional and. .. to get the business off the ground, own minority interests in the corporation Each year, the corporation puts out the red carpet for the outside investors, inviting them to the annual shareholders’ meeting where the annual financial and business reports of the corporation are presented by the corporate secretary and president, followed by nominations and a vote for next year’s board Although the three... Corporate Officers, Records and Reports, 10 | the corporate records handbook and the like) Major headings are further broken down into subheadings and sections that treat specific matters, such as Articles of Incorporation, Bylaws, and Director and Shareholder Meetings Or, you can usually do a search to find the statute you’re interested in, by entering a few key terms Checking Other Laws In addition... discussion, such as the approval of competing bids for a remodeling of corporate headquarters, then the directors often decide to get together for a real meeting At the meeting, they discuss the pros and cons of the proposed business prior to making a decision and preparing minutes chapter 2 | when to use corporate meetings, minutes, and written consents | 17 A “Closely Held” Corporation Is Not a “Close” . e Corporate Records Handbook 1 Corporate Documents and Laws Organize Your Corporate Records 4 State Corporate Filing Offices 8 Looking Up the Law Yourself 8 2 When to Use Corporate Meetings, Minutes, . holding corporate meetings and other formalities according to state corporate laws. Bylaws typically specify the frequency of regular meetings of directors and shareholders and the call,. it. 8 | THE CORPORATE RECORDS HANDBOOK Minutes of Meetings and Written Consents If your corporation has been in existence for some time, you may have records of annual and perhaps special corporate