One Secret To Protecting Your Company
IT’S ONLY MINUTES
When you have more than one owner of your company, you tend to get comfortable with the major decisions being done over text or email. This never seems to be an issue when everyone loves each other or you still haven’t started cash flowing enough to write home to mom about.
Often times, entrepreneurs and their partners will go months and years making major ownership and financial decisions and not a single decision will be reflected in formally adopted meeting minutes. Today, we unpack:
- What are meeting Minutes?
- What do they accomplish?
- Why you need to get in the habit of using them early and often?
What are meeting minutes?
Meeting minutes are simply a recorded document that tells a story about decisions being made by your company’s owners or boards of directors. If you take a look at your company’s bylaws or operating agreement, you’ll see discussions about voting and voting requirements. You HAVE to read this document and fully understand what types of company moves require other people to consent or at least have a chance to vote on that action.
Imagine you are sitting at a boardroom or card table in your office with your founding partners. You are discussing hiring this new stellar business developer who is going to open doors and land you new business. You are even imagining not having to supplement your expenses with credit card debt each month. This is a BIG deal. Someone suggests and everyone at the table agrees that giving Betty 5% equity over a couple years in order to really incentive her is a fantastic idea. This is normal and happens everyday.
Don’t move too quickly…
What you need to do next is open your operating agreement or bylaws and read the rules of how the company is able to issue equity to third parties. If you read the multi-member operating agreement Briefcase provides it users, you’ll see certain voting requirements and preemption rights that have to be addressed before you can give Betty her 5%. Keep reading to see how meeting minutes can make this scenario above end without planting time bombs in the process.
What do meeting minutes accomplish?
In our scenario above, the founders need to take a look at the meeting minutes provided to them by their Briefcase attorneys and then fill in the facts about what they are doing. In this case, they are awarding Betty a compensation package that includes her getting an opportunity to vest in ownership of the venture. The meeting minutes will then state a few actions that check off boxes required in the bylaws or operating agreement. For example, the minutes will generally state the following:
- (1) each owner consents to the sale of equity to Betty.
- (2) each owners waives their preemption right to buy their pro rata portion of the equity Betty is getting.
- (3) each owner consents to the new ownership cap table and that table is listed in the minutes.
- (4) each owner grants the manager or president the authority to finish the deal with Betty.
If your minutes accomplish something similar to this above, you’ve just likely dodged a litigation bullet. If you don’t get minutes drafted and signed by all the owners (and Betty), you are exposing the company to major liability and potential lawsuits relating to failing to check those corporate governance boxes.
Why do I need to make minutes a habit?
There are several reasons why meeting minutes are your new best friend.
The top two are discussed today. First, meeting minutes accomplish the writing and voting requirements for decisions required in your company’s bylaws or operating agreement. If you don’t accomplish these prerequisites, you are giving a future unhappy founder an excuse and opportunity to cause trouble and potentially unwind your transaction. This would likely create a domino effect of contract disputes between the founders and the company and Betty above. Basically, this is a parade of horribles that costs time, money and energy not spent making your business amazing!
Second, you can raise more money in the future when you get your group of Angel Investors or Series A investment. How, Briefcase, can that be? How does having founder meeting minutes make your company more money? GOOD QUESTION!
The answer is risk costs you money. If an investor perceives greater risk or lack of sophistication in your venture’s corporate governance, they are going to charge you more money or require a greater premium to invest in your business. In fact, Angel Investors and VC Funds hire corporate attorneys to find those points of risk so they can command more equity for lower investments and charge a higher cost of capital or require a lower pre-money valuation for the raise.
Bottom line, meeting minutes protect your business from spending cash on lawsuits instead of landing new clients, and helps you grow faster when you reach out to Angel Investors or VC Funds for investment capital.
Help? Yes, please!
If you’d like a sample, we offer a checklist on how to record minutes and how to memorialize these decisions. Briefcase’s attorneys are ready and waiting to answer these and other questions. We would love to help you make the right decision and provide all the documents you need to hold these meetings and get the minutes done right!
Questions: Do you know what meeting minutes are? Do you regularly use meeting minutes to record company actions? What do your bylaws or operating agreement require from a voting and consent standpoint?