By Cliff Ennico
“Two partners and I formed a media company in the 1990s that has turned out to be extremely successful. So successful, in fact, that we have received an offer from a large public company to buy us out at an astronomical price.
“We signed a letter with the company last week to move the deal forward, and the next thing we know, their attorneys have hit us with a list of about 100 things they want to look at: virtually every contract we’ve signed, every financial statement and tax return — you name it.
“Most of it we can handle, but there’s one problem: the company attorneys are asking us for ‘minutes of all director and shareholder meetings’ for the last five years. We hold partner meetings religiously every quarter, but we’ve never really documented them in any way.
“We do have a corporate minute book that we were given by the attorney who set us up years ago, but there’s nothing in it except for stock certificates signed by all three of us. We’ve spoken to a couple of attorneys who have told us that minutes are legally required and want to charge us outrageous fees for recreating 30 years’ worth of documents.
“Is there any way to solve this problem in a more cost-effective manner?”
First of all, congratulations! What you have achieved is the Holy Grail for all entrepreneurs — realizing your exit strategy by being bought out by a huge company at an astronomical price. Only about one in 500 entrepreneurial startups make it to this point, and you are to be congratulated for a job well done.
As for your corporate paperwork, you would be surprised how many successful companies find themselves in this situation. Most of my clients view legal paperwork as a highly distasteful task, and the thought of it “makes (them) want to throw up.” So it never gets done.
However, that’s a problem when you have a corporation. The corporation laws in virtually all states require that shareholders hold an annual meeting to appoint the board of directors, among other things.
As for the board of directors, while most state laws don’t require regular meetings, they do require some evidence of the votes taken at these meetings — either minutes of the meeting or a unanimous written consent signed by all three of you.
Yes, doing corporate paperwork is tedious and painful. But there are two reasons to make sure it gets done:
No. 1: If you don’t, there’s a risk that the plaintiff in a lawsuit will be able to pierce the corporate veil and seize your personal assets.
No. 2: When someone wants to buy your company, they will want to know that all corporate paperwork was properly done, and you will find yourself in the same painful situation as this reader.
Asking an attorney to recreate 30 years’ worth of corporate paperwork will inevitably result in a huge bill. Here’s what you can do, however, to get this job done quickly.
First, ask your attorney to create unanimous written consents of the shareholders (that’s the three of you) for each year the corporation has been in business, appointing each of you to the board of directors of your company for the coming year. These consents should be dated as of the last month of your fiscal year (December for a calendar-year company).
Then, take a day off from work, sit around a conference table and go back over each of the last five years, asking yourselves just one question: “What things did we do that year that were unusual and extraordinary?”
The corporation laws do not require that you document every business decision you make, only ones that are “outside of the ordinary course of business.” Examples of this come in many forms:
• Buying another company.
• Borrowing money from a bank.
• Raising capital from outside investors.
• Signing or renewing a lease of office space.
• Hiring or firing a senior management executive (not lower-level workers).
• Making loans to your company or taking distributions of profit (called dividends) for your personal use.
• Setting up compensation and benefit plans for your employees.
Put as many of these things on the list as you can remember. Once you’ve made lists for each year, give them to your attorney with a request that he or she prepare a unanimous written consent of your board of directors for each year, ratifying and confirming the extraordinary actions you took that year. Like the shareholders’ consents, these should be dated as of the last month of your fiscal year.
By doing these cleanup consents for each year rather than for each actual meeting you held, you should be able to reduce the legal budget and get the job done in a way that will satisfy both the law and your buyer.
One last thing: Since all of these documents are being signed after the fact, they need to be dated as of the meeting date, notwithstanding the actual date of execution. Otherwise, you and your attorney will be backdating legal documents — a criminal felony or misdemeanor in most states.
Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”
COPYRIGHT 2021 CLIFFORD R. ENNICO
DISTRIBUTED BY CREATORS.COM
