It seems that every other week, I come across another case of minute books put together by a private corporation that have been completed with an attitude of “this will be good enough.” Nine times out of ten, the estimate of what is good enough is off the mark, sometimes wildly. Usually, unfortunately, the point where we are finding out about minute book deficiencies is also the point where fixing them is expensive and time-consuming.
I want to focus on one aspect of proper minute book maintenance today (in part because it is the one that has bitten one of my clients most recently), which is the maintenance of the share register. The share register in itself is a simple document. Quite simply, it tracks who owns what shares in the company. The making of a share register, however, is a more complicated affair.
Here is a quick list of the things you might want to ask yourself about your share register and its associated pieces:
- Do I have an original of every share certificate? If not, do I have a copy with a note indicating who has the original?
If not, you might find yourself or your shareholders filling out declarations of lost share certificates and indemnities for those shares.
- Do I have subscription agreements for all of the shares that were issued? Do I have a joinder to my USA signed by the subscriber at the time of subscription?
If not, you may be tracking down signatures to your USA or confirming the terms on which the shares were actually issued.
- Are all of the supporting documents for the share register actually properly filled out? Are all the shares dated? Did we write in the number of shares for each share certificate?
If not, you may be explaining to investors that these shares were issued “sometime in 2012” or getting your shareholders to sign off on a restated capitalization table.
- Have I accounted for all instruments capable of becoming shares in my company? Do I have warrants outstanding? An employee stock option plan? Convertible debentures? SAFEs?
If not, you may struggle to offer a percentage of your company to interested investors on a fully-diluted basis.
If you find yourself reading this list and trying in vain to re-assure yourself that you have all of these items covered, you may want to call up your legal counsel and ask when the last review of your minute books was conducted. If there are missing documents, they can be tracked down or re-executed as necessary now instead of the week (or day) before you are trying to close a major investment.
Minute books don’t have to be scary, and they don’t have to be expensive, but the key to keeping down costs and complexity is regular maintenance. I know far too many talented clerks at our firm who find themselves stuck from time to time when it comes to minute book reviews because whole years are missing from the records. Sadly, at that point, there is very little magic we can work except to set you up with a whitewash resolution and hope no one complains. Being a little more proactive about your minute books can save significant amounts of time and money.
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