Rules for Company Meetings: Setting Expectations and Guidelines
Regardless of entity type, it’s important to address company meetings. While this stuff is not sexy, it is super important.
There are essentially two kinds of meetings: shareholders’ meetings and meetings of management. Shareholders typically have an annual meeting. Management meetings typically meet more frequently.
Election of management, how often they occur, where, when, through what medium (video, audio, or in person), notice requirements, and quorum and voting thresholds are addressed in a good governing document. Management meetings are meetings to take official action by the company. Similar types of provisions mentioned above will be found to structure the mechanics of the managerial meetings.
Let’s dive in a bit more deeply.
Setting Up the Structure and Guidelines for These Meetings
As you’ve probably gleaned from the information above, each type of meeting has a particular format. There are also specific regulatory rules that must be followed or you are basically inviting problems in.
What do you need to know to make sure things run smoothly and avoid potential legal issues?
Read Transcript
Hi, welcome back to Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. We just finished up ownership as one of the highlights of things that will appear in an operating agreement, shareholders agreement, partnership agreement, et cetera. The next thing we’re going to talk about is meetings. There’s two kinds of meetings. There’s the shareholders meetings and there’s the meetings of the management team.
So talking about meetings of the shareholders, generally you’ll have at least one called the annual meeting. The annual meeting usually will result in the shareholders electing their board. In a corporation, the shareholders elect the board and the board will appoint their officers. In a LLC, the members may elect a manager, and the manager or the managers on the board of managers may appoint their officers. They don’t have to, though, in an LLC, because the managers can act on behalf of the company unlike directors of incorporation.
Again, in a limited partnership, the general partner is the controlling entity. So there’s no real reason to elect anyone. In a general partnership, all of the partners are kind of the board and they all are also the managers and they all can run around as agents on behalf of the partnership. So there’s really nobody to elect unless the partnership agreement says that they’re going to have some sort of structure to it. Like they’re going to appoint by majority one person to be that person. Then there’s a contractual obligation to have a management board and election every year.
To go back to LLCs, as I mentioned another video, they could be managed as manager managed or member managed. And if they’re member managed, it’s more analogous to that general partnership where all the members are kind of the general partners and they can all buy in a company as an agent on behalf of the company. Unless, of course, the operating agreement says otherwise. And maybe there’s supposed to be an annual meeting that says which members are going to be the managing members.
So it gets a little confusing with all these different options and all these different managerial structures. But suffice it to say that at least in most of these companies’ structures there’s at least one meeting called the annual meeting. Okay? And the annual meeting usually is really important for honoring the corporate formalities of these entities to make sure that you have your limited liability, you have your entity.
Otherwise there’s something called piercing the corporate veil, which I’m not going to get into. It’s very hard to do that. But it is possible to do that. It is possible for a creditor to get through the company to the shareholders but it’s very difficult. One of the ways to make sure you are observing the corporate formalities is to have your meetings.
So with respect to meetings, there’s something called due process which applies to corporations as well, because actions are being taken, decisions are being made. You need to make sure people have notice. So the people who have rights in the company, which we talked about in the last video, they need to have notice. And the statute has provisions for what notice requires in terms of time, manner, delivery service, et cetera. Or the operating agreement, shareholders agreement, governing document – whatever – will cover that as well.
And in either case, you want to make sure that these terms are understood. These terms are very clear. Who has to get noticed, how the notice can be given, when is it going to be given, what time frames. For example, the statute usually has a window. It can’t be less than this amount of time or more than this amount of time. So if there’s a window, you have to give people notice. And you don’t want to have issues dealing with notice, because that could invalidate all the action. Litigation can ensue. And that’s very expensive.
We’ll talk about that in a separate video where we’re talking about spending a lot of money to figure out whether it was notice, whether this person knew about it, was it waived? All this stuff can be fixed and addressed in the operating agreement, the governing documents, to minimize litigation. So I can’t express enough so meetings have notice. There’s a lot of factors that go into notice.
Okay, now say everybody has notice, everybody shows up. Or there’s usually a provision of governing documents that say you don’t have to show up if every single person agrees in writing outside of a meeting. That’s another thing that you’ll see as well. Pretty common. But say everybody shows up to a meeting, and there’s something called quorum.
Quorum means that you have enough people with voting rights to actually have a meeting. And if there is enough people to have the meeting, there’s enough quorum to have a meeting, then there’s usually a threshold vote to take certain actions. And certain actions, depending on what they are, require different votes. And the governing documents can address all of this.
What requires this threshold, what requires a lesser threshold, what requires a majority threshold? All of this can be determined by you. They’re all variables that are determined by you. If you don’t decide, guess what? Your state will decide for you. And it could be a problem. It could be very much different than what you think it could be.
So, we talked about meetings, annual meetings, notice, quorum, threshold, decision making. Usually it’s in these governing documents. I would want to mention one more thing, and that would be in today’s world, you want to make sure that the meetings can be practical.
A Zoom meeting should not be a problem. Video conferencing has become somewhat accepted, I think, in our current environment, so you need to make sure that that’s something that’s built into the agreement, because it needs to be there.
Again, I would just want to reiterate on the shareholders meeting side that these are very important. These are where decisions are made. And if you have decisions that are made and you don’t do it the right way, they could be invalidated and that could kind of unwind a lot of things that have happened since that time. The litigation is expensive, all this can be avoided, and I encourage you to do it right the first time.
So briefly speaking about meetings of the management board or the management team, usually they’re going to meet quarterly, semi-annually, annually. And they’ll also have a lot of rules regarding notice. Who can call those meetings. Quorum. Who has to be there or how many people have to be there on the team to make a meeting valid. And of course, a threshold vote for how many people on the board have to vote a certain way to take action, depending on what it is.
For example, selling the company or buying an investment property or changing the direction of the business in general. Some of these decisions actually will require the shareholders to also vote on it because they’re so substantial, like selling the company or selling the assets of the company.
So all this stuff intertwines and you really have to make sure you have it understood. Again, the statute has default rules for you. They will decide for you if you don’t decide. The governing document is your opportunity to do it for yourself and your team and your partners. And you should do it early on while everybody’s happy and excited and full of optimism that this thing is going to be big.
That’s when everybody’s going to agree on all this stuff. Get it done, put it in a drawer and forget about it until you need to look at it.
When each thing arises, you can just pull it out and say, “Oh, here’s what we’re going to do. This is what we’ve agreed on.” Okay? I highly recommend you do it. Get it right from the beginning.
Again, get your holistic counsel. Talk to someone like us who does this all the time and sees all the pitfalls and all the different variations. Don’t find your Mickey Mouse documents online because you will pay for it later, I promise you. And overall, I hope that you found this particular video helpful.
Don’t forget to download our free Business Planning Stress Test. The link is in the description. And thank you for stopping by and stay tuned for more.
So, how exactly does each type of meeting work?
Breaking Down Shareholder Meetings and Management Meetings
With all of the potential for problems covered in the video, you might imagine these company meetings as big, dramatic events with lots of intrigue. While this possibility certainly exists, in reality the vast majority of shareholder and management meetings are quite straightforward and dull.
What does a typical meeting look like?
Shareholder Meetings
If you have done your job well in creating the governing document, your shareholder meeting should:
- Have a predefined format following parliamentary procedure
- Allocate a specific time for each speaker
- Outline what steps are required for shareholders to make statements
- Designate an official to oversee the meeting
- Elect the board of directors
- Include votes on shareholder proposals
- Make sure someone is recording the minutes
Even for large corporations, the “business” part of shareholder meetings typically doesn’t take longer than around a half hour.
Management Meetings
In contrast, management meetings are a bit less formal and tend to be longer and more involved. This makes sense, because they are meant to provide those actually running the operations of the company with an opportunity to define business objectives and address any challenges that have come up or may arise in the near future.
Organizing an effective management meeting involves five general steps:
- Deciding on a goal or goals. Clear goals help shape the agenda and keep the discussion focused. Include these goals in a meeting purpose statement, which you share with all participants ahead of time. This ensures attendees come prepared and ready to contribute meaningfully.
- Creating and sharing an agenda. This should not only cover all meeting activities, but also the order in which they will occur. Gather input from participants to tailor the agenda and encourage engagement. Assign a purpose to each task and allocate time to maintain organization and efficiency. Prioritize important topics by addressing them early. A strong agenda can help you stay on schedule, which prevents rushing through key issues and avoids extending the meeting beyond its planned duration. This shows respect for participants’ busy schedules while allowing them to implement decisions promptly.
- Hearing reports. For example, department heads can share updates on performance, challenges, and ideas for improvement. Allocate specific time slots for each report to ensure everyone has a chance to speak and maintain order during the meeting.
- Building in time for discussion. While managing time carefully, ensure every attendee has a chance to speak. Encourage questions and clarifications, especially when introducing new concepts. Listening to attendees’ input shows you value their contributions and ensures everyone understands their responsibilities moving forward.
- Finish with a review. Conclude the meeting by summarizing key points and decisions. This reinforces important takeaways and clarifies any remaining doubts. Provide an opportunity for final feedback and outline next steps so participants can immediately act on the outcomes once they return to their teams.
Make Sure You Get Your Meeting Governing Document Right
You can probably see why these types of company meetings are so vital to keep your business running like a well-oiled machine. Give your meetings the best chance of success by creating governing documents that clearly outline rules and procedures and serve as blueprints for how everything should go.
Remember – you don’t have to do it all alone. Get in touch today and we can help.
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Originally published 01/13/2022. Updated 01/27/2025.
Author:
Barry E. Haimo, Esq.
Haimo Law
Strategic Planning With Purpose®
Email: barry@haimolaw.com
YouTube: http://www.youtube.com/user/haimolawtv
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