Introduction and How to Use This Article:

The reader is cautioned concerning using the numerous forms below without concurrently obtaining the advice of experienced legal counsel. The forms constitute the bulk of those necessary for the day to day keeping of the corporate formalities in a California corporation and, if properly filled in and kept in the corporate minute book, will suffice to comply with the normal requirements of record keeping for a nonpublic California corporation, whether Subchapter S or Subchapter C.

The reader is invited to review the articles on corporations and corporate formalities on both the Article page of this Website and the more detailed articles on corporations on the retainer pages of this Website. For the purposes of this article, it shall be presumed that the reader is already familiar with those articles.

 

ANNUAL MEETINGS OF SHAREHOLDER AND DIRECTORS

The typical California corporation has an annual meeting of shareholders which follows immediately upon an annual meeting of directors. While both the directors and the shareholders can meet more often, based on the notice provisions of the Bylaws of the Corporation, the annual meetings of both Directors and Shareholders is a minimum requirement. The meeting date for the recurring annual meetings is usually set forth in the Bylaws though it may be altered upon the requisite vote. Notice of the Meeting (Forms below) is normally sent by mail to all shareholders (for the shareholders’ meeting) and Directors (for the directors’ meeting) with a copy of the notice kept in the Minute Book of the Corporation. Remember that the meetings of the shareholders is separate and distinct from the meeting of the Directors, though they can be combined provided the correct participation is maintained and the correct voting order adhered to.

A shareholder not wishing to attend may appoint someone to vote in his or her place ("proxy") provided it is done in conformity with the Bylaws of the company (form attached.) Such proxies must normally be in writing.

Minutes of both Directors’ meetings and shareholders’ meetings must be reduced to writing, attested to by the Secretary and President of the company, and often are attested to by all the shareholders and directors as well. (Forms for Minutes attached.) The corporate books of a typical corporation are mostly composed of the annual minutes, which form a general history of the corporation.

It is vital to note that the corporate minutes are NOT privileged and are susceptible to both audit and discovery in the event of litigation. Should a matter be discussed in which the attorney client privileged is to be claimed in the future, then an Executive Session of the Board or Shareholder’s meeting must be called, with counsel present, and the minutes of that session should be kept with the attorney.

The annual meetings must cover, normally, the following items:

SHAREHOLDERS MEETING

1. General Discussion of the Condition of the Company.
2. Election of Directors.
3. Ratification of the Acts of the Directors (if appropriate.)
4. Any other matters of interest to a shareholder or requested to be placed on the agenda by a director or officer.

DIRECTORS MEETING

1. General Discussion of the Condition of the Company.
2. Election of Officers of Company.
3. Ratification of the Acts of the Officers (if appropriate.)
4. Any other matters of interest to a Director or requested to be placed on the agenda by an officer or shareholder.

Directors and officers need not be invited to the Shareholders meeting but often are. Attorneys may be invited but may be barred by a vote of the shareholders. Voting methodology is discussed below. Directors may meet with or without shareholders, officers or attorneys but quite often all meet together since directors are often officers and shareholders themselves.

It is common for the meetings to be relatively informal but formality is required in the event of dissent within the Board or Shareholders and said minutes often form critical evidence in the event of corporate disputes in litigation. It is usual for corporations facing such possibilities to have corporate counsel present at such critical meetings to both give continuing advice and, at times, to act as temporary chairman. Attendance by corporate counsel (who represents the entire corporation) does not automatically allow attendance by counsel for an individual director or shareholder: that is up to the decision of the Board or shareholders.

The Directors normally elect a Chairman of the Board who runs the meetings but has no other special powers. The Shareholders normally elect one of the shareholders to run their meeting, acting as a temporary "Chairman" for that particular meeting and having no other particular powers. The Bylaws of the corporation normally provide in detail as to the duties of the various directors, officers and Chairmen and standard Roberts Rules of Order apply when the disputation becomes acrimonious. Most votes are taken on a "Moved, Seconded, and Passed by Vote’ method, and most officers and directors are elected by having their names nominated and a vote thereafter taken.

The Corporations Code gives wide latitude to the ability of the Bylaws to set the procedures for such meetings but a critical aspect is that each shareholder and director must be given the ability to participate and vote and, in the case of election of directors by shareholders, be given the right to cumulative voting as described below.

CUMULATIVE VOTING

California seeks to protect certain minority rights of shareholders by providing for cumulative voting in election of directors should they make a timely request at the shareholders meeting. This is discussed in more detail in the Retainer Page Article on Corporate Disputes but suffice to state that each shareholder has the right to so request and in such event, the number of seats of directors available is multiplied by the total shares owned by each shareholder and said shareholder can accumulate his or her vote and vote entirely for one vacant seat. A simple formula is thus created which demonstrates that in a board of three, a forty percent shareholder can always elect at least one director (rather than be consistently outvoted as seat after seat comes up for selection.) It is strongly advised that counsel be consulted if any such election process is at all likely.

RECUSING AND DECLINING TO VOTE

The issue of conflict of interest and fiduciary duty is discussed in more detail elsewhere in the various articles on corporate disputes and corporate formalities. A director in a conflict of interest (such as engaged in a contract with the corporation in which he or she may benefit to the detriment of the corporation) is required to so advise the board and the shareholders and refrain from voting on the matter. The issue of what is a conflict and what is full disclosure is often a hotly litigated one and the reader should consult with legal counsel should this question have a chance of arising. It must be remembered that personal liability may ensure if a breach of fiduciary duty arises.

HOW DETAILED THE MINUTES?

Each company has its own culture and many companies keep the minutes extremely brief, merely reciting the election of directors or officer and a ratification of the acts of the officers or directors. Other companies utilize the minutes to create a true history of all important events within the company and refer to them as the years go by to confirm strategic business decisions. Minus audit or litigation, the minutes are not subject to public scrutiny, are not filed with any public agency, though are accessible to the shareholders and directors of a company.

Most companies seek to have major decisions at least referred to and ratified in the meetings so that years down the road a disgruntled director or shareholder can not claim ignorance as to an action that was taken or a decision made. The discussions need not be recited with extreme accuracy but listed in a general manner giving a taste but not the details of a discussion. In other instances, when critical matters are discussed which the Board wishes discussed in detail in the minutes, the style can change.

Perhaps an example will best exemplify the typical style used: Assume a decision is being made as to whether to open a branch in a foreign country in the directors meeting. A typical normal recitation of the minutes as to that particular issue would go as follows:

The Chairman next addressed the Board and stated that he proposed opening a branch in Bolivia for the possible sale of nonfat products. He briefly described the possible markets available and gave a costing analysis of shipping, customs, and local employment expenses. Mr. Davis asked about the advisability of entering a market currently undergoing economic stress and Ms. Evans protested that the Argentine market could be better exploited if the resources proposed for Bolivia were instead allocated to opening a northern branch in that country.

The Chairman indicated that sales had improved significantly from the new products being distributed in the United States and he was confident that the Argentina branch could be expanded in addition to opening the Bolivian branch should the next quarter equal the last quarter.

After further discussion, it was moved, seconded, and passed by a vote of three to two that RESOLVED: THE COMPANY SHOULD OPEN A BRANCH IN BOLIVIA WITHIN THE NEXT THIRTY DAYS AND THE PRESIDENT IS DIRECTED TO EXPEND SUFFICIENT SUMS, NOT TO EXCEED THIRTY THOUSAND DOLLARS, TO ESTABLISH THE BRANCH AND REPORT BACK TO THE BOARD ON ITS PROGRESS AT THE NEXT BOARD MEETING.

The same discussion could be made much less detailed if the company does not wish the issues to be placed on permanent record. In such event, the following minutes could be made:

The Chairman advised the Board of his wish to open a branch in Bolivia and gave a brief discussion of the benefits. The Board discussed the pros and cons of the proposal and after motion duly made, seconded, and passed three to two, RESOLVED: THE COMPANY SHOULD OPEN A BRANCH IN BOLIVIA WITHIN THE NEXT THIRTY DAYS AND THE PRESIDENT IS DIRECTED TO EXPEND SUFFICIENT SUMS, NOT TO EXCEED THIRTY THOUSAND DOLLARS, TO ESTABLISH THE BRANCH AND REPORT BACK TO THE BOARD ON ITS PROGRESS AT THE NEXT BOARD MEETING.

It is the resolution which is the empowering document and the discussion merely creates a record of the issues before the board. Any Director can request that the actual Directors voting and in which way they voted be kept by the secretary.


RATIFICATION OF BOARD ACTIONS

Precisely what is meant by "ratifying" board or officer actions? By adopting such a resolution, the directors (in the case of ratifying officers’ actions) or the shareholders (when ratifying directors’ actions) agree that the actions of the officers or directors were appropriate and agree that the actions should have been taken. Practically speaking, it means that the actions may not be made a matter of protest or legal action at a later time: rather like waiving one’s rights to sue.

Such ratification can be voided if the ratifying party can argue that he or she was unaware of the true state of the situation, had not been advised of a critical fact, or that the matter had not even been discussed to be ratified at the relevant meeting. For that reason, the party seeking ratification is well advised to have minutes of such detail that the specific actions sought to be protected are described in the minutes.


QUORUMS AND BOARD/SHAREHOLDER MEETING POWER MANEUVERS

The bylaws normally provide quorum requirements for both commencing a meeting and for ending a meeting. (A common technique of a losing minority in a board or shareholder meeting is to suddenly leave the meeting, destroying the quorum and nullifying further actions in the meeting.) Well written bylaws can thus impose critical powers on either the minority or majority in any meeting and those long and boring bylaws, usually adopted by the incorporators with barely a glance, can be objects of expensive scrutiny once a fight begins. (See Retainer Article on Corporate Disputes.)

The various maneuvers and "tricks" that can be utilized by an educated or clever member of the Board or a shareholder are far too complex to discuss in an article such as this. It is vital to note that the control of a corporation can be utterly reversed by such maneuvers and any corporate executive who expects disputes in the Board or Shareholders meetings is well advised to have good legal counsel and prepare for all such maneuvers before the meetings commence.

FORMS BELOW

Below are Notices of Meetings for both Shareholders and Directors: Form basic minutes for both such meetings: Proxies for Shareholders; waiver of proper notice of meetings for both shareholders and directors (presuming notice was somehow not achieved) and basic annual meeting forms. Special meetings of either shareholders or directors use the same forms but merely dispense with election of officers or directors and indicate that the meetings are special rather than annual.

 

 

NOTICE OF ANNUAL MEETING OF BOARD OF DIRECTORS
OF

___________________________________.

 

 

 

 

Notice is hereby given that an annual meeting of the Board of Directors of ___________________, Inc., a California corporation, will be held at ____. m. on ________________, 20__, at_____________________________________________.

The meeting will consider and act on the following:

(1) Election of officers.

(2) Annual report to Board by officers.

(3) Any other business as may properly be brought before the meeting.

(4) Other?

 

Dated: _____________, 20__.

________________________

_______________, President

 

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF

____________________________________.

 

 

 

 

Notice is hereby given that an annual meeting of the Shareholders of _______________________________, Inc., a California corporation, will be held at ____. m. on ________________, ___________, at ________________________________.

The meeting will consider and act on the following:

(1) Election of directors.

(2) Annual report to shareholders.

(3) Any other business as may properly be brought before the meeting.

If you do not expect to be present at the meeting and wish your shares to be voted, you may complete the attached form of proxy and mail it in the enclosed addressed envelope.

 

Dated: _____________, __________

________________________

_______________, President

 

 

 

 

WAIVER OF NOTICE AND CONSENT TO HOLDING OF
ANNUAL(SPECIAL) MEETING OF SHAREHOLDERS OF

_____________________________________

 

 

 

 

The undersigned shareholders of ___________________., a California Corporation, desiring to hold an annual meeting on [DATE], at [TIME].m. at [ADDRESS] California, hereby waive notice of, and consent to, the holding of such meeting.

The undersigned agree that any business transacted at that meeting shall be as valid and legal as though that meeting were held after notice was duly given.

 

Dated: ______________ ____________________________________

_____________, Shareholder

____________________________________

_____________, Shareholder

____________________________________

_____________, Shareholder

____________________________________

_____________, Shareholder

 

 

 

WAIVER OF NOTICE AND CONSENT TO HOLDING OF
MEETING OF BOARD OF DIRECTORS
OF
[#1 name of corporation]

 

 

 

 

The undersigned, members of the Board of Directors of [#2 name of corporation], a California corporation, hereby waive notice of, and consent to, the holding of a meeting of the Board of Directors at the office of the corporation on [#3 date], 199[#4 year], at {#5 time].m., and agree that any business transacted at that meeting shall be as valid and legal and have the same force and effect as though that meeting were held after notice duly given.

 

Dated: ________________________________________

[#6 name], Director

Dated: ________________ ________________________

[#7 name], Director

Dated: ________________________________________

[#8 name], Director

 

 

 

PROXY

 

 

 

The undersigned, as record owner of shares of __________________, Inc., a California corporation, described below, hereby appoints _________________________________, as the proxy of the undersigned to attend the meeting of the shareholders of the corporation on___________________________, _________, and to represent, vote, execute, consent, waive or otherwise act for the undersigned in the same manner and with the same effect as if the undersigned were personally present at said meeting.

This proxy may be revoked at any time by the undersigned and unless revoked earlier shall terminate on______________________, _______.

Number and Class of Shares Owned: __________common stock.

 

Dated: __________________, 20__,

________________________

Shareholder

________________________

________________________(address)

 

 

 

 

 

 

 

 

MINUTES OF ANNUAL MEETING OF SHAREHOLDERS
OF

 

 

______________________________

 

 

 

An annual meeting of the Shareholders of __________________________, a California corporation, was held on ______________________________, at the office of the corporation.

The meeting was called to order by _____________, President, who presided as Chairman; __________________, Secretary of the corporation, acted as Secretary of the meeting.

The following shareholders were present at the meeting: ________________. No shareholder was absent. [or The following shareholders were absent, representing ____ percent ( __%) of the outstanding shares of the corporation.]

After discussion. on motion made, seconded and carried, it was:

RESOLVED, that each and all of the resolutions, acts and proceedings of the Board of Directors of the corporation heretofore had and adopted at their meetings, held to date, as shown by its records in the Minute Book of the corporation, and each and all the acts of the officers of this corporation in carrying out and promoting the purposes, objects and interests of this corporation, to date, be and same are approved and ratified and are hereby made the acts and deeds of this corporation.

The meeting then proceeded to the election of Directors of this corporation, to serve for the ensuing year or until the election of their successors. The following were duly elected Directors of this corporation:

___________________

___________________

___________________

Each Director so elected accepted the office.

(OTHER BUSINESS SHOULD BE NOTED HERE IN MINUTES. REMEMBER, MINUTES ARE NOT PRIVILEGED DOCUMENTS AND MAY BE REVIEWED IN LITIGATION OR IN TAX AUDITS.)

There being no further business to come before the meeting, the meeting was adjourned.

 

________________________

_______________, Secretary

[ATTEST:

________________________

______________, President


________________________

______________, Shareholder


________________________

______________, Shareholder]

 

 

 

MINUTES OF ANNUAL MEETING OF DIRECTORS
OF

________________________________________

The annual meeting of the Board of Directors of ___________________, a California corporation, was held on ________________, at the office of the corporation, immediately following the annual Shareholders' meeting.

There were present the following Directors, constituting a full Board:

(Or the following directors were present, constituting a quorum pursuant to the Bylaws of the Corporation.)

__________________

__________________

__________________

_____________ President, acted as Chairman and ______________ Secretary acted as Secretary of the meeting.

The meeting proceeded to the election of officers. The following were duly elected to the office indicated after the name of each:

_________________ President

_________________ Secretary

_________________ Treasurer

(Here place minutes of all other matters to come before the Board: remember that minutes are NOT privileged and are subject to subpoena both in litigation and in tax audits.)

There being no further business to come before the meeting, on motion made, seconded and carried, the meeting was adjourned.

 

________________________

________________, Secretary

[ATTEST:

______________________

_____________]_, President