Why Are Reliable Board Minutes So Important?
Every company, in all jurisdictions, at some point in their life span, will be required to formally hold board meetings and produce minutes which capture information, data and conflicts of interest relating to the company’s business. Imprecise minutes could be harmful to the business and therefore resolving this issue should be high on your priority list.
In this post, we will consider why taking board meeting minutes is important and discuss the overall risk to the business caused by failing to produce accurate minutes.
1. Better board meeting structure
The minutes of the company, which are a formal record, should set out the intention of the meeting, the discussions, actions and the ultimate decision(s). These types of decisions are usually recorded by terminology such as ‘resolved’, ‘approved’ and ‘recommended.’
The most common meeting intentions are:
- a review of accounts for approval
- a change of board structure/officers of the company
- annual returns/confirmation statements
- changes in share capital due to allotments, transfers and/or special share transactions
- other operational considerations
The minutes are then added to the company’s statutory books and used as an internal and external point of reference.
2. Minimising risk to the business
Due to the potential for the minutes to be reviewed at any time, these must be a true and accurate reflection of the meeting. Just because your business does not fall within a regulated classification or is not listed on a stock exchange, does not negate potential requests from the court or applicable regulatory body to review and rely on the minutes relating to a specific matter of the company.
3. Legislative and regulatory protection
Sometimes the importance of meeting actions is not given appropriate weight and consideration. They are just as important as the ultimate decision of the meeting. Their purpose is to ensure that the business is aware of any implications imposed on it by the officers of the company during the board meeting.
If the information is not communicated effectively, certain parts of the business could fail to fulfil their required duties. This could have a detrimental impact on the business, e.g. a declined bank loan/account opening request, and even civil or criminal prosecutions against the officers and/or company. In effect, a company could no longer have the operational authority to run the business.
In such circumstances, a small company with limited capital might find itself in a position of not being able to meet its financial commitments and being struck off by the Registrar. A larger company should think in terms of the negative impact of press releases or dissatisfied shareholders and possible removals at board level.
Impact of meeting minutes on the company – examples
Don’t just take our word for it. Below case examples from different jurisdictions further portray how a request for board meeting minutes from external bodies, such as courts or regulated bodies, might impact your company:
- (Re: Bhagat Bros. Ltd vs Unknown 1925)
The court here considered the Indian Companies Act and the resolutions contained within a set of minutes to determine what was the agreed remuneration for a liquidator after a dispute arose as to the exact sum.
- (Re Indian Zoedone Co 1884)
The courts have been clear that minutes can be called upon in litigation proceedings and that such minutes are prima facie evidence of the intentions and decision(s) of the business. Therefore, the courts can make a decision solely based on the minutes, unless other evidence can be provided to show the contrary.
- (Municipal Mutual Insurance v. Harrop)
This case highlights the importance that decisions made in the board meeting and recorded in the minutes are the actual intention of the Company. A mention of a resolution in a board meeting that had not been drafted did not invalidate the intention and implementation of the resolution. The court stated that the board minutes gave effect to the intention of the resolution. In this instance, all bonuses became automatically pensionable as opposed to at discretion, which is what the Company had meant to implement.