It’s a good question. The traditional answer was that corporations needed to keep minutes as a matter of law in order to document decision-making by the Board of Directors. The idea was that, if a corporation couldn’t show that it was acting like a real company, and not some puppet, alter-ego, of its majority shareholder, the corporate veil could be pierced, and its owners could be held personally responsible for all the liabilities of the corporation. As such, the corporate formalities of having a board of directors that made key management decisions for the company, were critical, and the way to evidence that these formalities were being followed was through minute-taking of board and shareholder deliberations and decisions.
Over the years, the law has become more relaxed in this regard. It is pretty difficult to peirce the corporate veil in most states, especially with limited liability companies. That said, minute-taking remains vital for plenty of other really good reasons. Consider the below questions:
- Is your Business Run through your LLC? Even though your limited liability company is unlikely to be disregarded by a judge, you still need to show that your business is actually being run inside your company and not by you directly. Keeping a separate bank account for the LLC will get you a lot of the way there, but keeping minutes to record all the key steps will take you all the way. For example, in your minutes, you can show that the ownership of business assets, like trademarks and contracts, are held by your LLC. You can record how you transferred your old pickup into the LLC as a company vehicle and the value you ascribed to it. You can clarify that contracts you have been signing have indeed been on behalf of the LLC. This is all possible without reflecting these actions and decisions in your minutes, but your minute-book is the opportunity to clarify when and how and why these actions were taken.
- Did you Loan or Contribute Money to your Business? You decided your business needed a little extra investment, so you simply moved some cash from your personal account into your business account. Wait. Did you contribute that money as capital or did you loan it to the business? The difference will really matter on down the road when you want to split a dividend with your partner or when you calculate your tax basis. Writing a simple resolution into your minute book to reflect what you intended at the time will avoid this type of uncertainty after the fact.
- Who are your Company’s Directors and Officers? Without minuting votes of shareholders or directors to appoint your management, it will forever be uncertain who the members of your management actually are, and even if you and your partner know, third parties (banks, for example) have nothing to rely on.
- Is that what we Decided? If you have partners or multiple owners of your business, minutes go from being something that is prudent and smart to do to something that is essential for the health of your partnership. Writing down key decisions and recording them avoids miscommunications and misunderstandings after-the-fact. It avoids finger-pointing and, ultimately, legal disputes.