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The Corporate Minute Book

corporate-minute-bookIt is important to keep your corporate minute book current.  It should include various important documents, such as the company’s articles of incorporation, bylaws, and minutes or written consents of all meetings and actions of the directors, committees and shareholders.

A current corporate minute book is a useful tool in helping you to comply with corporate formalities, which helps prevent shareholder liability.  In addition, in the event you want to raise money or sell your business, attorneys for the other side will likely want to see your minute book.

Problems to avoid include the following:

  • Minutes that the secretary has not signed
  • Written consents without all necessary signatures
  • No minutes for regularly scheduled shareholder or board meetings
  • Written consents authorizing execution of certain documents as attached, but failing to attach the documents
  • Failure to document calls or notices of meetings
  • Notices or calls of meetings that are legally inadequate
  • Shareholder minutes that do not reflect the number of shares present or how they voted
  • Resolutions showing board approval but not shareholder approval where both are necessary
  • Lack of authorization for issuing shares of stock

Keeping an up-to-date corporate minute book is not unduly burdensome, but well worth the time and effort.

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The Benefits of an Advisory Board

As entrepreneurs, we often keep things close to the vest.  While there are many advisory_boardadvantages to this, there are also disadvantages.  Receiving input from unaffiliated experts is an excellent way to create a competitive advantage and move your business forward.  One way to achieve this objective without feeling too vulnerable is through the use of an advisory board.

An advisory board plays a critical role in helping you move your business to the next levels.  Assembling the right group of advisers allows you to glean from others both their success and horror stories.  Having a group of financial, legal, industry, marketing and operational people to provide you with strategic guidance and feedback helps you make better decisions based on their input and experiences.

The advisory board does not serve merely as a sounding board.  It allows you a trusted audience to discuss your thoughts and ideas regarding your business, and also provides you with insight and perspective of professionals with vast experience from different backgrounds.  Since you will share sensitive information with these people, pick advisers you trust, and whose experience and background you value, and be willing to listen to their ideas and suggestions.  The relationships between you and your advisers, as well as amongst the advisers, will grow and strengthen over time, allowing you additional comfort in sharing the details of your business.  The better your advisers know your business, the better their suggestions will be.

Remember, it is still your business and you are still the decision maker.  Having a group of trusted advisers should enable you to make better decisions faster.

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The Nonprofit Board/Staff Relationship

I do a lot of speaking and coaching on the topic of board governance and board responsibilities.  I also do a lot of ballroom dancing, and lately it occurred to me that the relationship of ballroom partners is a great example of how the relationship between a nonprofit’s board and staff should work.

In ballroom dance, the gentleman determines the step and the general direction in which it will go.  This is not accomplished by using an iron grip to force the partner to do a certain step or go a certain way.  It is accomplished by keeping a good connection with the partner, staying aligned with your center, and giving the partner room and permission to do her part of the job.

The woman, in turn, is responsible for executing the step, filling up the space offered by her partner, and giving the step shape and style.  This is not accomplished by making independent decisions about what step should be done or what direction should be taken.  It is accomplished by keeping a good connection, responding to the movements of the partner, and maximizing the opportunities your partner gives you.

When each partner does his or her job, it supports the other partner and the partnership.  The dancing flows, creativity grows, steps are more powerful and shapes are stronger.  Yes, sometimes one partner or the other might go further than expected and the couple may get off balance, but they regroup and use the opportunity to find the right balance for them as a team.  Mutual trust and individual confidence are the keys to success.  Along with hours and hours and hours of practice, but that’s another topic!

dancersTake a look at this picture and try to imagine how either of these dancers could achieve this line without the other.

Think about this dynamic in terms of the nonprofit board and staff.  The board determines the mission and vision of the nonprofit.  They are responsible for good communication with the CEO and staff (the connection), to ensure programs and services are aligned with the mission (staying aligned with center), and for giving the staff the room and opportunity to do their work by effectively delegating the running of the business (giving room and permission).

The staff is responsible for keeping the board informed of successes and challenges (the connection), responding to the strategic direction set by the board (the partner’s movements), and maximizing the opportunities presented to the organization for its programs and services.

When the board and staff each do their jobs, and each allow the other to do their jobs, the organization is strong and dynamic, powerful, and successful.  Yes, sometimes the relationship may get off balance, but with a good connection, staff and board can regroup and regain focus.  Mutual trust and individual confidence are the keys to success.

Remember your role, have confidence in your partner, and maximize your opportunities, for the good of the whole.

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The Significance of Loan Covenants

Before signing any documents for a business loan, pay attention to the covenants.  Loan covenants can be affirmative, things the lender requires you to do, or negative (restrictive), things you can not do without the lender’s prior approval.  It is critical that you understand the covenants set forth in your loan documents; violating a loan covenant is a default under the agreement and the lender can choose to call the loan or take other remedial action.

tacomatitleloans-getapprovedAffirmative covenants include providing financial statements to your lender on a regular basis and carrying certain insurance policies, while negative covenants include restrictions against borrowing from another source, making management changes and selling collateral (other than inventory).  There are any number of covenants that may be included in your loan documents, these are just a few possibilities.

Financial covenants require your company to maintain certain financial ratios, such as those pertaining to working capital, net worth, debt, profitability and cash flow, which are calculated based on your financial statements.

In addition to the more traditional business loans, there is also the business line of credit.  The LOC typically includes a borrowing formula based on a certain percentage of current accounts receivable.

Loan covenants are the lender’s way of attempting to limit its risk, and are therefore not to be taken lightly.

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Personal Liability – Piercing the Corporate Veil

One of the biggest advantages of running your business as a corporation, limited liability company or other corporate entity is that it provides limited liability to the owners.  Stated differently, the owners are shielded from personal liability.  However, you must be diligent in maintaining the corporate existence in order to enjoy such protection.

piercing-the-corporate-veil[1]

One of the first things I tell business owners is not to treat the company as an extension of themselves.  At the top of my list is to avoid paying personal expenses from corporate accounts.  Do not write a corporate check to pay a personal expense, do not use a corporate credit card to buy your family’s groceries, do not use your corporate credit card to take your wife to the theater.  In addition, if the business owner has multiple businesses, I remind her to keep each corporate entity separate from the others.  Do not use one company’s check to pay another company’s expense and so on.  Comingling of assets can present similar problems as well.

Courts have regularly noted that if the business owner does not respect the corporate existence, an adversary will not be required to either.  In these instances, the adversary argues that the company is nothing more than the alter ego of its owners, and courts allow the adversarial party to “pierce the corporate veil” and seek to hold the business owners personally liable.

Respecting the corporate existence also includes keeping proper books and records, minutes of director and shareholder meetings, and having proper agreements in place, to name a
few.  Agreements should include those with outside companies, and especially those with the owners or related companies, if applicable.

The law goes far to protect business owners, but it has its limits.  It is incumbent upon you to protect yourself and your business.

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Define Your Charitable Purpose

We receive many calls from people thinking about starting a nonprofit organization to help solve a particular problem or address a particular issue.  The idea is that a nonprofit will allow people to raise money to fund a defined need.  Sometimes, though, the very real problem or issue to be addressed isn’t one that can be funded with a charitable organization.  For example:

  • Something that will benefit a single individual, like a wheelchair ramp to provide easy access to the individual’s home, or
  • Expenses that are someone’s personal or parental obligation, like fees for sports or other extracurricular activities.

hatinhandWhen considering the need for a new nonprofit organization, keep in mind that the charitable purpose must be broad and the organization’s work must benefit a whole community, not just the members of the nonprofit or a specific individual.

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Happy Hour

BauerGriffith and Independence Leads Group

Happy Hour Event

Where Doing Good is Good for Business

The principals of BauerGriffth, and the members of the Independence Leads Group, invite our non-profit and for-profit clients, associates and colleagues for spirits and libations, and good networking opportunities.

When:              May 8, 2014, 5:30 – 7:30

Where:             Winking Lizard Tavern, 25200 Miles Road, Bedford Heights, Ohio

Cash bar, hors d’oevres provided

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Help From the IRS

irspubsDid the title of this post catch your attention?  Yes, the IRS really can be helpful to nonprofits with many commonly asked compliance questions.  The IRS publishes tons of material each year, much of it very technical and very much geared toward tax professionals.  But they also publish some very clearly written, plain language documents that can help us as nonprofit board members and staff leaders.  These documents are referred to as IRS Publications (as opposed to Forms, Technical Advice Memoranda, Opinions, etc.), and are easily accessible by searching the IRS website.  You can enter the publication number if you know it, or just search by keywords.

Some of the most common issues and questions for charitable organizations are addressed by the following:

  • Publication 526, for rules regarding charitable contributions.
  • Publication 557, for information on how to obtain and keep your tax exempt status.
  • Publication 1771, for rules on receipts and acknowledgements of gifts and contributions.
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The Importance of a Business Plan

According to Dun & Bradstreet statistics, poor planning is the number one cause for the failure of a small business.  A business plan is both your company’s resume as well as its growth strategy.  Your business plan, especially for a start-up or early stage company, should outline the plans, strategies and goals for your business.

When writing your business plan, remember that you cannot foresee everything that will happen to your company, so be prepared to revise it as conditions change.  In addition, be realistic with your assumptions, take into consideration the difficulties in growing your business, take your competitors into consideration, and discuss the risks to your business.

Your business plan should be concise and easy to read and comprehend.  It should express the market opportunities for your business, and the strength and depth of your management team.

Keep in mind that youruntitled business plan serves three key functions, namely a planning tool for the growth of your business, a document to convey information to prospective investors, and a base to measure and monitor your company’s performance over time.