It would be impossible to compile a complete list of all corporate actions requiring Board and/or stockholder approval. The following list contains only examples of the kinds of actions that are typically considered not in the ordinary course of business and, thus, require such approval.
As a general rule, the Board is responsible for all corporate decisions and actions.
In ordinary cases, the Board, through the bylaws and through resolutions, delegates to the president and other officers most of its responsibility for day-to-day operations.
However, the Board must still set the corporation’s goals and policies, it must monitor management, and it must approve major corporate actions, particularly those that do not arise in the ordinary course of business.
If the officers act on such matters without Board approval, their actions may be voidable. For this reason, banks and certain other parties dealing with corporations often require a directors’ authorizing resolution for specific transactions
Proper authorization by the Board is important for other reasons, too. In a tax audit, a corporation may not be able to sustain its position without minutes or signed consents reflecting Board authorization for important transactions.
Failure to hold regular Board meetings, keep accurate minutes, and observe other corporate formalities can be important considerations where creditors attempt to “pierce the corporate veil” and impose personal liability on stockholders.
If a corporation should for any reason become 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, such evidence can be extremely difficult to obtain
Corporate Actions requiring board and/or stockholder approval
In some (but not all) instances, Board committees may be validly delegated the responsibility for Board approval, which should be memorialized in the minutes and resolutions.
Actions 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 That May Require Both Board and 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 Requiring Stockholder Approval
1. Election and removal of directors (usually).
If the corporation proposes to do any of the foregoing, or anything else that is not a part of its everyday business, the Secretary should plan either to obtain the requisite written consent of the directors and/or stockholders to such action or add the item to the agenda for an upcoming meeting. Time constraints may require the use of written consents, or it may be necessary to hold a special meeting.