Five Reasons To Keep Your Corporate Minute Book Up-to-Date
By: THOMAS W. GARTON
Although corporate minute books serve as official corporate records, keeping them current is a low-priority task for most. Here are five reasons why you should bring your minute book up-to-date this summer:
The minute book leaves a trail that enables owners and attorneys to look back at the decisions and transactions of a corporation. The minute book is an important audit backup. With it, one can determine effective dates for tax purposes and establish justification for the accrual of expenses and fixed obligations.
Up-to-date records can help you avoid challenges to the corporation's authority to take certain actions. These challenges might come from minority shareholders, fellow directors, employees or government agencies. Your corporate minutes are important records of the authority granted to the corporate officers and directors to act.
The minute book establishes the background record needed by your lawyer to support certain legal opinions. When a corporation undertakes a significant transaction, it is often necessary to obtain a legal opinion regarding the corporation's history as well as current authority for such a transaction. An example may be something as simple as securing certain types of financing and other banking relationships. The corporate minute book provides evidence that the corporation has done everything it is supposed to do.
The corporation's minute book should include stock records. This section needs to be carefully kept current because it is the one true ownership record of the stock of the corporation. Ownership is not officially recorded anywhere else. Your minute book should reflect exactly when and to whom shares of stock have been transferred, particularly if the corporation is an "S" corporation. We also generally recommend that the original stock certificates of the owners be retained with the minute book. This prevents the certificates from becoming lost and prevents shareholders from selling their stock without the corporation's knowledge.
The minute book records amounts that the corporation intends to pay as compensation and dividends. It records the grant of authority to make contributions to qualified retirement plans. It is much more difficult for the IRS to prevail in treating an intended deductible payment to a shareholder as a dividend if the minute book contains a contemporaneous record of authorization of compensation, bonuses, rent or other deductible payment.
If you can't remember the last time you updated your minutes, now is a good time to give your attorney a call.