Update Now and Save Later: The Key Documents for Maintaining an Organized Company Book

Everybody remembers that one kid in school that didn’t use a folder. They would simply shovel their homework, notes and all other school materials directly into their backpack as you sat in disbelief at their document management system. Although this system may have worked for them short term, I’m certain after accumulating papers throughout the school year there were times they had lost an important document amongst the clutter. Now, think about substituting a backpack for a company’s internal governance book. Unfortunately, this same system is used all too often amongst companies today, and, regrettably, the classic, “my dog ate my homework” excuse will not fly in the business world.

Maintaining a company book is an essential function of running any business. It provides a chronological timeline of a company’s lifecycle and business decisions. When it comes time to effectuate a significant business decision (e.g., securing financing, selling the company or buying another, or distributing additional ownership interests), reviewing the company book is a key part of the due diligence process.

Put yourself in the shoes of a prospective lender, buyer or investor. Any of the three may be preparing to give you a lot of money as an investment in your company. Before doing so, they will ask you for your company book to review. If it is cluttered, missing documents or, in the worst cases, non-existent, they will become skeptical of their potential investment. This may not only cost you valuable time and money to fix, but more importantly it may cost you value in the deal, or the deal all together.

To stay organized and prepare yourself, there are a few documents that you will want to keep within your company’s book.

1. Organizational Documents.

Organizational documents (depending on your entity type) consist of the incorporation document you file with the secretary of state’s office (e.g., Articles of Incorporation or Articles of Organization), your internal controlling document (e.g., Bylaws, Operating Agreement or Partnership Agreement), any amendments made to these documents, annual filings, and any other company specific documents, like your Federal Employer Identification Number (aka EIN). These documents control the specifics of your company and how you have determined it should be run.

2. Company Meetings and Minutes.

State laws require your company to hold meetings for its management and owners to discuss current happenings and to vote on significant business decisions. These meetings can either be regularly scheduled or held at special meetings, depending on the circumstances. You should document all phases of calling and holding these meetings, including the notices sent out ahead of the meetings, the attendance at the meetings, and the discussions and voting that take place.

3. Resolutions.

To document the decisions your company votes in favor of, whether at a meeting or in lieu of a meeting, you will need to draft resolutions. Resolutions are a tool that officially documents the decision that the company has decided to take and demonstrates the proper authority to make such decision.

4. Share/Ownership Ledger.

This important document keeps track of who owns your company. Tracking any capital contributions, distributions from the company or any issuance of interests is key in understanding who owns and has what rights in your company. Typically, the format of the ledger will vary depending on entity type, size and structure, but the underlying reason for it remains the same across all entities.

By getting ahead and maintaining these four key documents within your company’s book, you will be able to create a well-organized company that can make quicker business decisions. Ultimately, the amount of time OR money it takes to start an organized document management system and to continually incorporate or update these documents is nowhere near the amount of time AND money you will spend on the back end trying to fix it.