Keeping Good Business Records
In today’s post, we’ll discuss why it’s important to maintain good business records, what records you should preserve, and how to produce meeting minutes.
What Are “Good Business Records”?
A “good business record” is clear documentation that captures important information at the time the information is created or exchanged (and a “generally better than nothing business record” is one created later to document something that happened in the past). Examples of important information that a business should document are agreements made between business partners, decisions made by the company, and information collected from customers. One of the simplest forms of a good business record is “minutes” created at or directly after a meeting documenting the discussion and decisions from the meeting.
We encourage companies to keep good business records, not only because most companies are required by law to keep certain records, but also because poor record keeping could force companies to spend time and money ratifying past actions or resolving disputes.
Selfishly (or perhaps unselfishly depending on your perspective), attorneys also prefer to see good business records from their clients, as it allows us to better help clients (and keeps our fees down, as we don’t spend time “chasing” information).
You are required to maintain certain records
Under Washington law, corporations, LLCs, and limited partnerships are required to maintain certain company records and make them available to shareholders, members, or partners for inspection. Although a partnership isn’t required under state law to maintain business records, a partnership is required to make any business record it does retain available to partners. The right to inspect business records is an important ownership right that helps shareholders, members, and partners protect their interests and keep company management accountable.
You need to access records to complete transactions
It is also important to maintain good records because your company will occasionally be asked to produce records documenting certain company actions and authorizations. You will likely be asked to produce governing documents, financial records, or proper authorizations when you:
- Open a bank account
- Apply for a line of credit
- Seek financing from investors
- Sell the business
- Enter into certain contracts
- Are subject to a tax audit
What Records Should You Maintain?
The following is a list of documents you should keep in paper or electronic form:
- Company’s governing documents (i.e. articles of incorporation, bylaws, certificate of formation, limited liability company agreement)
- Any amendments to governing documents
- Organizational meeting minutes or initial board consents
- Meeting minutes or consents required by law or authorizing an action that required a vote or consent
- Approval of key transactions
- Financial statements at least for the past three years
- Accounting records
- Tax election forms and tax returns
- Registration or renewal forms filed with the Secretary of State
- List of all current and past directors, officers, shareholders in a corporation, members in an LLC, and partners in a partnership.
- Articles of merger or conversion
- Articles of dissolution
The list above isn’t an exhaustive list of documents your particular business should keep. You should consult your attorney and accountant to make sure you are complying with the law and implementing best practices in recordkeeping.
Creating Meeting Minutes
We often get asked, “what are meeting minutes?” and “how do we create them?” Meeting minutes are notes taken at a meeting documenting different actions that the participants considered and the actions that they approved. Meeting minutes generally reference the minutes taken at meeting of the board of directors but can reference minutes taken at any business meeting. Shareholder approval may also be required for certain actions, so meeting minutes may also memorialize shareholder approvals. The appropriate level of detail to include in the minutes will depend on a variety of factors, including what type of meeting it is (i.e. annual meeting of board of directors or shareholders, regular meeting, or committee meeting) and what the purpose of the meeting is. Some detail is better than no detail, but just taking minutes is a good first step to keeping good business records.
What should you document?
Generally, you should hold a meeting and create meeting minutes (or execute written consents) to document any action that requires a vote or consent of the directors, such as appointing officers, adopting bylaws, ratifying the articles of incorporation, amending governing documents, issuing shares, and approving a sale of assets. The type of approval required for these actions will depend on the state law that applies and the corporation’s governing documents.
You should include the following details in meeting minutes:
- Name of organization
- Type of meeting
- Date, time, and place
- Name of meeting leader and secretary, if applicable
- List of attendees and absentees
- Note whether or not quorum is present
- Notes on discussions
- Any resolution proposed
- Any resolution adopted
Make sure any actions taken comply with the corporation’s articles and bylaws. For example, you’ll want to make sure the corporation’s governing documents allow for proxy voting if directors ask to vote by proxy.
After the creation of meeting minutes, they should be sent to the board of directors to review and approve via resolution at the next meeting. So meeting minutes created after the first meeting should always include a discussion of whether the prior meetings’ minutes were approved (and if not, what needs to happen to see that they are approved).
If you have any questions about record keeping or other corporate governance issues, please contact us today.