QUESTION:
My startup is incorporated in Delaware and I’m doing business in California. What’s the minimum I need to do regarding board meetings for this corporation? I’d prefer to do nothing at all. It’s just me and one other partner.
ANSWER:
Dana Shultz
by Dana Shultz, Attorney at Law
You should hold an annual stockholder meeting – or, alternatively, prepare a written consent – at which the stockholders elect the board of directors. See Delaware General Corporation Law Section 211 and following at http://dana.sh/c2DGme.
Subject to bylaws provisions, the board should appoint officers. See DGCL Section 142 at http://dana.sh/hBxVlL.
The officers carry out the corporation’s day-to-day business activities, such as signing routine contracts. However, the board should approve all important transactions – a merger or acquisition, an unusually large investment, etc.
When the corporation was formed, the board should have passed standard startup resolutions: appointment of officers, authorizing issuance of shares for specified consideration, approval of corporate seal and form of stock certificate, etc.
The secretary should prepare minutes of all meetings which, with written consents, should be kept in the corporate records book.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
ADDITIONAL ANSWER:
Ethan Stone
by Ethan Stone, Stone Business Law
I completely agree with Dana. It’s worth emphasizing that the board of a small corporation almost always needs to approve any issuance of stock or stock options, any change in the rights or number of shares of existing stock, and any transaction involving stock if the corporation is a party. There are exceptions that become important as a company grows, such as granting stock options and restricted stock units under a plan approved by the board. At the startup phase, however, it’s not a good idea to look for exceptions. Just get board approval. Depending on what you’re doing, shareholder approval and various state filings may also be required. If you doubt the importance of any of this, it’s worth reading this recent opinion (it’s very readable and, as a bonus, stars a guy named Rusty Blades) of the Delaware Chancery Court, invalidating a series of stock transactions with very serious consequences for all involved: http://courts.delaware.gov/opinions/download.aspx?ID=146800.
Thank you for the information you’ve provided, it was very helpful!
So besides an annual stockholder meeting, are there specific notes I need to make that are required by California and Delaware?