Is a Corporate Secretary Really Important?

07 Jun Is a Corporate Secretary Really Important?

As a corporate attorney, one of the most common errors I see is failure to implement even basic corporate governance practices. This can lead to astoundingly bad places in certain circumstances. But even when it doesn’t, it is often costly to reconstruct past corporate actions. And that cost can be defrayed relatively easily. One way to do that is by having – and using – a corporate secretary.

Startups and entrepreneurs may not be familiar with corporate secretaries or what they do. So let’s take a closer look.

A corporate secretary is different from an administrative assistant, receptionist, or similar positions. They are corporate officers like CEOs or treasurers. In California, corporations must have a secretary and LLCs or other entity types generally can have one. Here’s what a corporate secretary does:

• Keeps a book of minutes of stockholder and director meetings. This is a key aspect of corporate governance as minutes are a record of what was said and decided in meetings. As I’m sure our litigators will agree, one of the key problems in partnership disputes is a failure to document corporate actions. Good minute-keeping will explain corporate decision making and is the cornerstone of corporate governance.
• Manages the company’s stockholder ledger, capitalization table, org chart, and more. These documents show who owns an entity, how much they own, and their address for notices. This seems simple and basic, but it’s not. I’ve had to represent clients in reconstructing years’ worth of stock issuances into a cognizable ledger, and it’s not fun or cheap! Additionally, if a company doesn’t have a list of its stockholders’ addresses, giving required notices will be impossible, impractical, and/or expensive.
• Give notice of corporate meetings. Corporate bylaws, LLC operating agreements, or other governing documents fix specific time tables and procedures for providing notice of meetings to stockholders, directors, members, etc. Failing to follow these can lead to drastic outcomes. A good corporate secretary can avoid many of these pitfalls.
• Maintain other corporate records. I need not explain in more detail why this is necessary for good corporate governance.

What about small businesses that don’t have enough operations to justify a corporate secretary? Corporate bylaws will often allow one person to hold multiple officer positions, so the problem can be avoided. If a person is appointed secretary and can’t make a meeting, the board, officers, or in same cases even the secretary can appoint an acting or assistant secretary to perform normal functions during the meeting. There may even be third parties who can provide corporate secretary services on an hourly or temporary basis.

What about LLCs or other non-corporation business entities? Even though they aren’t corporations, they can still generally appoint officers to serve at the whims of their managers or managing members (in the case of an LLC), partners (in the case of a partnership), or other managing persons. Non-corporation entities need not adhere to the many of the same formalities you’d see in a corporation, but that doesn’t mean they shouldn’t crib from corporations when helpful. And having a corporate secretary really does help.

So in sum, a corporate secretary is absolutely necessary for good corporate governance. Stay tuned to the Canna Law Blog for more information on cannabis corporate governance topics.