Conduct an Initial Board Meeting
After you have filed incorporation documents, paid filing fees, drafted bylaws, and met with lawyers and accountants, the next step to starting a corporation is to hold an initial board meeting. This meeting is required in order to legally form a corporation. There are several important things to be done at this meeting, but it can also be a bit of a celebration for those involved with starting the corporation, as it signals the end of the formal incorporation process.
At this meeting, the initial directors and board members will approve the governing documents, make resolutions, and elect the first board of directors. The meeting can be very short if necessary, though they often tend to take longer than other board meetings, as there is usually a lot to discuss concerning the beginning operations of the business. Follow the guidelines below to properly conduct an initial board meeting.
Steps
- Set a date and time convenient for all directors to attend. Make sure to give the directors of the company ample notice so that everyone can attend. Generally, in order to conduct business at the meeting, you must be a quorum, where a majority of all directors is present. Usually, directors may “attend” the meeting by conference call as long as everyone present can hear one another. Directors may vote by proxy if the bylaws provide for proxy votes, however since this meeting is a time where the initial directors will make many decisions, it is important for as many directors to attend the meeting as possible so that they can provide their input.
Your bylaws may require certain notice to be given to each director before a meeting is held, which usually provides that the notice be given a certain number of days in advance. If so, you must give the proper notice. In the alternative, you may conduct the meeting without giving the specific notice if all directors attend the meeting and do not contest the lack of notice, if some directors miss the meeting but a quorum is still present at the meeting (under the condition that they each sign a waiver of notice), or if the directors that miss the meeting sign the minutes of the missed meeting. In general, it is a good idea for any director that misses any meeting to sign off on the minutes of the missed meeting by simply writing “approved” and signing their name. - Record minutes of the meeting. Company minutes are where the results of votes, records of resolutions, and summaries of proposed ideas of the company are kept. A director, usually the secretary, should keep a record of what went on at the meeting. The minutes need not contain any specialized language, but should accurately reflect what was said and done at the meeting.
Items to include in the minutes are: the time, location, and members present at the meeting; any pertinent company issues raised and a summary of some of the key issues raised in response to that issue; the results of any votes conducted, including who voted for or against; and any other important information about what happened at the meeting. A good rule of thumb is to include all information that a director that could not attend the meeting would need to know. Minutes should be filed with all other important company documents. A sample template is linked below. - Adopt the bylaws. In many cases, a company that has just incorporated will form a bylaw committee in the early stages of incorporation in order to draft a set of bylaws for the company. The initial bylaws are usually informally agreed upon even before this formal meeting. Therefore, the adoption of the bylaws is a simple matter of taking a vote and recording the results. The bylaws themselves may provide for a specific type of voting for resolutions, but at this initial meeting, each director will have one vote and the majority of all directors must approve the bylaws. Each director will usually sign the appropriate place on the bylaws and the results of the vote will be recorded in the minutes of the meeting.
- Elect a “permanent” board of directors. The Articles of Incorporation usually provide for an “initial” board of directors. Those directors are the ones who attend the initial meeting and do the initial work to form the company. The initial board of directors may or may not be the same as the permanent board of directors. At the initial meeting, the initial board of directors will use the method of voting prescribed in the bylaws to elect the “permanent” board. The number of directors of the company is set forth in the company bylaws. The word “permanent” is in quotes because it refers to the newly elected board of directors, but those directors are usually up for a vote on an annual or biannual basis.
- Issue stock. At this initial meeting, the physical certificate of stock ownership should be authorized by way of a resolution of the board. Each state will have a procedure for the formalities required in the certificate. Many companies choose to order “corporate books” from a business supply company that come with stock certificates that can be easily filled in and given to shareholders.
- Make any other pertinent resolutions. Optionally, at the first meeting you may make other resolutions necessary to begin conducting business. Such topics may include choosing a banking institution, an attorney (if one has not already been chosen), an insurance company, and/or an accountant. You may also choose to discuss employee salaries and benefits. It is not a requirement to discuss these topics at an initial board meeting, but it could be necessary in order to conduct business and therefore it may be efficient to discuss them at this time. The board may also elect to address other optional topics during the initial board meeting, in which case, the following should be considered:
- Determine whether you will require shareholders to sign buy/sell agreements.
A buy/sell agreement requires a shareholder to give other shareholders or the corporation the first right of refusal if they wish to sell their shares. A sample buy/sell agreement is included in the “California Corporate Formation Information” link below. - Decide who will be authorized to sign on behalf of the corporation.
Consider which of the directors will be authorized to sign contracts on behalf of the company. Typically officers of the corporation (president, vice president, etc.) may need authorization in the interest of efficiency. - Decide if you will be an S Corporation.
An S Corporation is a corporation that elects to avoid double taxation of traditional corporations by paying taxes of the corporation at the individual level. To become an S Corporation, all shareholders must sign off of the election on IRS form 2553 and pay quarterly taxes. - Choose an accounting method.
The IRS requires corporations that have inventories to use the accrual method of accounting. The accrual method uses the terms “accounts payable” and “accounts receivable.” This means that you generate income at the time you sell your product and the buyer is liable to pay for it. Likewise, the businesses expenses are generated when the company becomes liable to pay for something.
The cash method of accounting is far simpler. It essentially works like a bank account. Income is recorded when it is received, and expenses are recorded when the business pays its bills.
The financial issues of a corporation can be quite complex. Hire a good accountant or financial adviser to advise the business about these issues. - Authorize the release of funds for initial costs and purchases.
The individuals authorized in the section above may wish to authorize the release of funds from the corporate account for any start-up costs that may arise, such as the costs of attorneys, rent, inventory, etc.
- Determine whether you will require shareholders to sign buy/sell agreements.
Tips
- Board meetings in general should be conducted as other business meetings. Be courteous when others are speaking, be polite when you are speaking to others, and take notes if necessary.
- The board meeting need not be a formal affair, requiring business attire, a strict agenda, and a rigid system of how the meeting will run, though some corporations, usually with large boards, choose to run meetings in this fashion for the sake of efficiency.
- Your company bylaws contain the answers to many questions that may arise at the meeting. Suggest to all directors that they thoroughly review the proposed bylaws before attending the meeting.
