This is second in a series of articles about how to deal with deficiencies in corporate records.
In Part 1, we addressed the importance of conducting thorough searches of any available records and evidence of past corporate decisions and actions. It cannot be overemphasized that all remedial steps depend upon such searches. But it should be expected that whatever information is found will be incomplete – gaps, something missing, garbled or half-done paperwork (or, in more extreme cases, nothing at all). This is where it is necessary to determine whether the omissions are material or unnecessary. In this task, the “Outline Guide to Corporate Minutes” below may be useful.
What happens next is a process that is divided into three parts: Reconstruction, Ratification, and Confirmation.
Once the available information and records have been collected, the task is then to select from the collected information those facts that are material for the purpose of proper corporate records. The assistance of legal counsel can be valuable in determining what information is material. The goal is to reconstruct, as closely as possible to the actual events, what are known or reasonably understood to have taken place. Material corporate events to be captured would include corporate actions which have, or may have had, policy or financial implications, or which serve to identify members, directors and officers. Each of these events should be coupled to a relevant date with as much accuracy as possible, at the very least including the year.
Ratification — By Way of Resolutions
Once satisfied that the reconstruction corresponds as much as possible to the actual events, it is then necessary to prepare one or more omnibus resolutions to ratify past corporate actions. In a sense, this is “pulling ourselves up with our own bootstraps” in an effort to re-create a record that corresponds to real history as it actually unfolded.
The subject matter of the past actions being ratified will determine whether the resolution(s) must be enacted by the directors, or the members, or both. Even when it may be unnecessary in the strictly corporate sense to seek the approval of the members, there is great merit in the finality or closure resulting from the member sign-off on the reconstruction. Admittedly, there can be internal political considerations in making this decision.
Although this would be a situation-specific judgment call, we generally recommend that the resolution(s) include a series of recitals (“Whereas” clauses) that should do three things:
first, frankly acknowledge the previous deficiencies in record-keeping;
second, confirm the extent of the current efforts to seek out the information that underlies the resolutions: and
third, indicate an assertion that, to the best of the knowledge, information and belief of the directors and/or members, the conclusions and decisions reflected in the resolutions correspond to the actual events that they respectively record.
These recitals can have a powerfully persuasive effect upon the directors and members when asked to approve the reconstruction, and upon third parties who may have reason to examine the corporate proceedings.
Notice of a meeting to consider those resolutions should include the text to be presented. Although the notice might include further explanations, we recommend that any such explanations should be included the recitals.
Confirmation – At Directors’ and/or Members’ Meetings
The meetings of the directors and/or members will determine whether the reconstruction resolution(s) will pass. Experience suggests that it is most likely that the organization will desire to update its records and the directors and members will approve the reconstruction. Just as the method of cure for incomplete records is based upon common sense, so too the approval of the reconstruction will likely be driven by the common sense of those voting.
Whether Such Process Is Effective
Even acknowledging that this process is “pulling yourself up by your bootstraps”, the results of this process leave the organization much better off than before. Most corporate law statutes confirm that “unless the contrary is proved”, minutes recorded in a minute book are taken as proof of their contents. Once the reconstruction resolutions are recorded in the minute book, it may very well be possible to rely upon the resolutions to confirm that past corporate actions have been duly sanctioned and directors, officers and members have been duly appointed or elected.