With the end of 2012 fast approaching, it is an excellent time to review your record-keeping practices and make sure your records are updated. As a small-business owner, you invest a significant amount of time and money to ensure your company’s progress and success, and taking the time now to update your records can help in a number of ways.
How to go about updating records?
Regardless of the form of entity, the manner or process for updating your records is fairly simple and straightforward. First, it is important to review the entity’s governance documents – yes, the documentation you received and may not have read or reviewed since the time you organized your company – because this documentation will advise you as to how to proceed with corporate changes and updates. So, if you have a corporation, this will be your articles of incorporation and your bylaws; if you have an LLC, this will be your articles of organization and your operating pr management agreement; and if you have a partnership, this will be your partnership agreement. You may have a shareholders’ or close corporation agreement, too.
Even if you have already implemented transactions, changes and updates in and to the business, it is important to ratify those actions by the manner or process defined in the governance documents. Why? In order to record the changes or updates and to evidence the fact that such modifications were authorized by the entity. Failure to ratify and substantiate a change to the business can create issues like stalled or failed business transactions in the future or undue questions from the IRS or State when they audit. It is much easier to make these recordings contemporaneously with the actions so that later partners and outsiders do not question that authority. Also as some of our clients will attest, the cost of recreating the history of the company years down the road so that you can sell or move or enter into a significant transaction is costly and time consuming.
Subject to the language in your governance documentation, many updates and changes can be authorized in writing. Other updates may require a meeting – a board meeting, or a meeting between managers, members, or partners – and a vote. In the event that you call a meeting, here are some things to keep in mind:
- Be Prepared and Provide Sufficient Notice to Appropriate Parties
- Make Sure You Have a Quorum or the Necessary Number of Voting Parties to Take Action and Know What Vote is Necessary to Approve the Actions Desired
- Have an Agenda and Include Potential Ratification of Past Actions, and Other Potential Actions
- Record Actions Taken at the Meeting and to whom Future Duties were Assigned
- Get Feedback to Improve Meeting Process and Record-Keeping
- Contact Outside Counsel in advance of the meeting if you have any questions and consider having counsel present if you anticipate a contentious issue or needing assistance documenting or explaining the situation
~ Rochelle Friedman Walk, Esq. and Matthew A. Welker, Esq., Walk Law Firm, PA