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When Board / Stockholder Approval is Needed

As a general rule, if your corporation is dealing with a business affair that could be deemed outside of ordinary activity, either the Board or stockholders will need to approve it first.

Below, we’ve provided you a general reference list of corporate actions that require Board approval, stockholder approval, or both. This list contains examples of actions that aren’t typical or “day-to-day” in the ordinary course of business and will need approval in one way or another.

 

Overview of Corporate Governance

In general, the Board is responsible for all corporate decisions and actions. In ordinary cases, the Board, through the bylaws and through resolutions, delegates most of its responsibility for day-to-day operations to the president and other officers. However, the Board must still set the corporation’s goals and policies. The Board must monitor management and approve out-of-the-ordinary corporate actions.

If the officers act on these unique matters without Board approval, their actions may be rescinded. For this reason, banks and certain other parties dealing with corporations often require a director’s authorizing response for special transactions.

Proper authorization by the Board is also important for different business matters, such as a tax audit. During an audit, corporations need to provide documents for minutes or signed consents reflecting Board authorization for important transactions.

It’s important for corporations to observe all legal formalities like holding regular board meetings and keeping minutes. If a corporation fails to do those things, situations such as creditors attempting to “pierce the corporate veil” and impose personal liability on stockholder can occur. If a corporation becomes involved in litigation, proper minutes and other records can be indispensable evidence. The corporate Secretary’s certified copy of the minutes is solid evidence that the action reported in the minutes was indeed taken; otherwise, the proper evidence could be difficult to find elsewhere.

 

Actions Requiring Board / Stockholder Approval

In some instances, Board committees may be assigned the responsibility for Board approval, which should be recorded in the meeting minutes and resolutions.

 

Actions Typically Requiring Board Approval

1. Election of officers; hiring or dismissal of executive employees

2. Setting compensation of principal employees

3. Establishment of pension, profit-sharing, and insurance plans

4. Selection of directors to fill vacancies on the Board or a committee

5. Purchase, sale, or lease of major or long-term assets

6. Borrowing funds, entering into credit agreements, and establishing or changing bank accounts

7. Lending money, except in the case of companies whose business it is to do so

8. Offering new services or opening a branch office

9. Changing the location of the principal office

10. Instituting or settling litigation

11. Issuing shares of stock

12. Investing corporate funds (other than short-term cash management)

13. Adopting or changing share certificates or the corporate seal

14. Declaration of dividends or distributions

15. Establishing or changing dates of regular meetings of stockholders and directors

16. Establishing a fiscal year

 

Actions Requiring Board & Stockholder Approval

1. Amendments to the Certificate of Incorporation

2. Adopting or amending bylaws

3. Establishing a subsidiary or entering into any merger, acquisition, or other reorganization, recapitalization, or change in stockholders’ rights

4. Sale, lease, exchange, or other disposition of all or substantially all of the corporation’s assets

5. Dissolution of the corporation

6. In certain instances, indemnification of directors, officers, and employees

7. Approval of certain transactions between the directors/officers and the corporation, including, in some cases, loans to or guarantees of the debts of such persons

8. Adoption of stock option plans and employee benefits plans involving directors and officers

 

Actions Typically Requiring Stockholder Approval

1. Election and removal of directors

If a corporation proposes to take any action on exceptional business dealings, such as any of those above mentioned matters, the Secretary should plan either to obtain the proper written consent of the directors and/or stockholders on the matter, or at least add it to the agenda for the next corporate meeting.

 

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