Part of being a business owner means following certain business formalities. One such formality is the annual meeting. What’s the big deal with these and why should you have an annual meeting?
If you are structured as a corporation, it is a legal requirement to hold an annual meeting. For LLCs, it is not a legal requirement, but many LLCs make a point of putting annual meeting requirements into their founding documents. One thing you should note as an LLC, if annual meetings are a part of your operating agreement, that DOES create a real incentive to follow through. Not having an annual meeting as a corporation, or when one is part of your operating agreement as an LLC, could result in loss of liability protection.
So, for pragmatic and legal reasons, annual meetings are necessary. Creditors can use the lack of an annual meeting to “pierce the corporate veil” and get at the principals’ personal finances. So there is a good reason just from a liability standpoint to hold an annual meeting.
But beyond that, annual meetings present many other benefits. It’s an opportunity to get some big-picture things done, along with handling details about running the business that requires a broad decision-making framework. Here’s what we mean:
What Should Happen at an Annual Meeting?
These meetings can be much more than checking a box on your “legal requirements” to-do list. This is a chance to provide constituents, employees, and stakeholders with a “state of the company” and to gather input on important company decisions. This is also a good time to elect officers if your business has officeholders and to generally get everyone on the same page.
The bigger your company the more time and collective effort should be put into planning your annual meeting. Whatever your size and however much time you put into it, an annual meeting should be taken seriously as a basic task of running a business.
The agenda for the annual meeting might include some or all of the following:
- Appointing directors to the board. State law outlines requirements for who can serve where. As a principle you may be able to serve in a capacity such as president, but not in other positions.
- Removing directors when necessary or pragmatic.
- Voting on transactions that require shareholder approval, like mergers, asset sales, or dissolution. Check with your state and your own founding documents about voting requirements for these actions.
Those are the biggies. Some other items that may need to be addressed:
- Adopting plans for employee reimbursement
- Changing accounting methods
- Instituting, changing, or eliminating employee benefit plans like medical, 401(k) plans, etc.
- Retaining earnings by C-corporations
Before the Meeting
You want this time to be planned out, so you are providing the most valuable information about what is happening in the company. The subject matter to be discussed, who is speaking and when, preparation for questions that you want to raise or that might be raised in the meeting—none of this should be left to chance.
Before the meeting, notice needs to be given to all stakeholders. For annual shareholders’ meetings, notice only requires the date, time, and place of the meeting.
Also, make sure to designate someone to take minutes. The minutes should include a list of directors in attendance and that a quorum has been established. Here is an excellent template for what else should be included in annual meeting minutes.
Annual meetings are more than a pro forma ritual. They provide legal cover for your personal liability as an owner and provide an opportunity to share your vision, make decisions, and keep your business on the right track. If you are ready to start a business or have questions about annual meetings or any other aspect of running a business, Business Rocket is a great resource.