Minutes are required by law. Sure, there are no Minutes Marshals who will come arrest you if you don’t do Minutes for your business. But there are consequences, and it’s not worth avoiding your doing Minutes.
Note for the uninitiated: Minutes go into a Minute Book, which is not what you use to teach a child how to tell time. It has no hands clipped together which you move around the picture of the face of a clock.
Rather, a Minute Book is usually a three-ring binder, sometimes with a not-so-catchy phrase — like “Minute Book” — embossed in gold on its cover. That gold-leaf stuff is totally irrelevant.
What isn’t irrelevant: is where the consequences of not having Minutes comes in. This volume is supposed to contain the history of your business. And if there is no Minute Book, or if the history is nothing but blank pages, you are playing with two fires:
- You jeopardize the liability shield protecting your personal assets from your company’s creditors.
- I.R.S. can use this to challenge the existence of your business.
Example: you have a dream of selling your business someday. The day arrives that you make a deal to sell. There’s a contract. And in it, the buyer and the buyer’s attorney and CPA, want you to produce your business’ Minute Book.
What are you going to hand them? A notebook with blank pages? Not a great idea. And the night before you have to produce the Minute Book is not the time to start creating that history called “Minutes.”
Others look for the Minutes, too. How about when IRS asks for the Minute Book for an audit. How about when the State of Georgia is checking up on who you reported as an independent contractor and they think the person was an employee.
At this point, you might be saying “Awww, I don’t know need to do Minutes. It’s just me owning the business.” (Or “it’s just me and my spouse.”)
However, there are no exceptions in the Georgia statutes saying “If your business only has one or two owners, skip this requirement because you don’t have to have Minutes.”
Really, doing the Minutes is not a big deal. This history of your operation isn’t hard to write because you construct it like a diary. At least once a year, you write down what important or legally significant things your business did during the past year.
Examples of what’s important or legally significant: if the company borrowed money; signed a lease; bought some big equipment; brought in key personnel; gave raises (especially to key people), awarded bonuses, set up a retirement plan or made a contribution to an existing one.
Even more basic for every year: the election of directors and officers. Nobody anoints these people or treats their election like the company is knighting them..
There’s are other things to put in the annual Minutes, too. The best way to determine what should go in them: a short conference with lawyer and accountant. They’re the ones who will be knee-deep in protecting attacks on the liability shield and dealing with audits.
Now Minutes are usually the result of having a meeting. Here’s a shortcut, though: you don’t really have to have a formal meeting to have Minutes. Georgia law, like many states, allows for what’s called “Consent Minutes.”
Basically, if all the directors sign Consent Minutes, saying they agree with what the Minutes say, then you’re golden. In effect, the Minutes start with text like this:
We are all the shareholders of this business. We don’t have to meet, because we ratify and approve all the business things written below.”
Of course, if you’re the sole owner, you’ll feel funny writing up Minutes. But you do have to at least elect directors and officers, so why not do it with the correct formality? Think back: when you opened your business’ bank account, you let the bank know in writing who could sign checks, etc. for the company.
That document was titled “Resolution.”
And while it may have seemed like typical bank pomposity, the institution knows the risk: they don’t want to be caught doing or allowing something which the business claims they shouldn’t have done. So they get a written Resolution in which you tell them who can sign, who are the officers, etc.
Now if your business – and it could be an LLC as well as a corporation – does have more than one owner, and if you’re having disagreements, then it’s really important to know who is the President and who isn’t. And who owns what shares. And who are the directors. Which is why it’s good – and safe – to have signed Minutes to look at.
So for lots of good reasons, take a few seconds each year. Do your Minutes.