Securities Practice Guide Excerpt: Corporate Formalities

 
Overview
 
An examination of the company’s corporate records is required to ensure that all corporate formalities have been observed since formation of the company. Although it is best that the requirements were met at all times, many corrections and authorizations may be made upon discovery of the issues.
 
Corporate Minutes
 
The company’s minute book must reflect that board of director and stockholder meetings occurred in accordance with the company’s governing documents, as well as the laws of the state of formation. A full review of the minute book should be completed to confirm the existence of resolutions of the board of directors and stockholders authorizing key decisions, as required by the company’s governing documents and laws of the state of formation.
 
Stock Ledger
 
The company’s stock ledger must accurately document who owns stock in the company, how much each stockholder owns, who the stock was purchased from, and how much was paid for it. The issuances of all shares must be authorized by the board of directors, in accordance with the
company’s governing documents and laws of the state of formation. A stock certificate should be issued to each stockholder, and such certificates should meet state law requirements. It is critical that the stock ledger accurately reflects the ownership of the company and that all shares of stock were duly authorized, were fully-paid, and are non-assessable.
 
It may also be necessary to prepare and issue new stock certificates that meet public trading standards.
 
Annual Filings
 
The company should also ensure that its annual filings, such as corporate reports, franchise tax, and federal and state corporate income tax returns are all up to date.
 
Warning: Many experienced professionals, including accountants, lawyers, and investment bankers, will be carefully reviewing the books and records of the company. Keeping the books in order from the time the company is formed, or, at the minimum, reviewing them and addressing any issues in advance of the IPO process will prevent numerous complications and delays.
 
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