The Seventh in a Series of Articles for Entrepreneurs
by Bukre Ayan
People form legal entities to gain protection from being personally liable for the business’s obligations. Courts may pierce the corporate veil and hold owners of limited liability companies (“LLCs”) and corporations liable for the debts of those entities if there is not adequate separation between the entity and its owners. One way to maintain separation is for the individual to always sign documents with the title they have in the entity (President, VP, Secretary, etc.). Another way to prove separation is by the entity complying with the requirements of the law, such as holding annual meetings and special meetings, when necessary. The minutes (i.e., records) of the meetings, along with notices and waivers of notice, should be kept as proofs of those meetings.
Shareholders hold their annual meeting to elect the board of directors and discuss other business-related matters. Besides that, they hold special meetings when the board needs their approval for actions that make a fundamental change in the corporation (e.g., merger, sale of assets, dissolution). Board of directors, on the other hand, focus on management-related tasks at their meetings. They select corporate officers, review the performance of those officers, set general business policies, etc.
Shareholders/board members should be notified about the place, date, and time of their meetings, and if it’s a special meeting, about the purpose of the meeting. Also, a notice of any shareholders meeting should be given to shareholders at least ten (10) but not more than sixty (60) days before the meeting. To waive the notice requirement, shareholders/directors may submit a signed waiver of notice before or after the meeting.
Bylaws of corporations usually provide about the quorum and the majority of the vote that is needed to decide on a particular matter. For board meetings, unless bylaws fix higher proportions, the majority of the entire board constitutes a quorum, and the vote of the majority of directors present at the time of vote is the decision of the board. Finally, the board/shareholders may decide on a matter without a meeting, prior notice, or a vote if all directors/voting shareholders consent to that matter in writing.
Operating agreements of LLCs govern their operations, including the annual and special meeting requirements, e.g., holding meetings when and how frequently, notice requirement, waiver of notice, and the majority of the vote needed. Unless otherwise provided in an LLC operating agreement: i) members of LLCs should hold their annual meetings at least once a year, ii) notice of meeting should be given to members at least (10) but not more than sixty (60) days before meetings, iii) notice should provide the date, time, and place of meeting, and if it’s a special meeting, the purpose of the meeting, iv) members may waive notice requirement by providing a signed waiver of notice before or after meetings, v) members holding the majority of interest constitute a quorum, and vi) members may decide on a matter without meeting, prior notice or a vote if members consent that matter in writing.
(Our next article in the November edition will be on Adding Investors and Others to Your Entity. To see the previous articles, please visit our website at https://www.reedbusinesslaw.com)
Please be advised that this article is not intended to provide you with any legal advice, and prior results do not guarantee a similar outcome.
Bukre Ayan is an international associate with the firm of Reed CNY Business Law, admitted to practice law in New York and Türkiye, specializing in business, immigration, and real estate law. Spanish translations of this series are provided by Ms. Sylvia Espinosa, our firm’s legal intern from Mexico. Reed CNY Business Law represents individuals and businesses throughout Central New York and around the world. Contact us at firstname.lastname@example.org or sespinosa@ReedBusinessLaw.com.
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