Why Do We Need a Corporate Records Book?
I recently answered a question on Quora. If you incorporate a company [in Delaware], should you purchase a corporate kit? My answer about corporate records books, and a follow-up exchange about providing records electronically, are reproduced, slightly edited, below.
A: When I form a corporation for a client, I include a corporate records kit in the fee (and do similarly for LLCs) because:
- It is important – both to the company and to any shareholders or directors who may have an inspection right – that there be a single specified location where the complete, up-to-date corporate records book is kept.
- The kit includes share certificates, which should be prepared – including applicable securities and restrictive legends – and signed to protect against allegations by third-parties that ownership interests were transferred to them.
- The kit includes a corporate seal, which may (or may not) be helpful or necessary at some point.
Follow-up Q: Is there software for managing legal kit type documents online? Why should the legal kit be on paper?
A: Corporate documentation can be stored and provided to shareholders and directors electronically (indeed, I suspect that many parties requesting inspection would prefer electronic delivery).
There exists software for storing and organizing corporate records (often called “corporate secretary” software), but it is oriented toward larger corporations. There is no reason for a startup to purchase such software.
I find that many of my clients are quite pleased and excited to see the records book with the corporation’s name on it and its substantive contents. If you will not receive that pleasure, and if you feel that share certificates and a seal are unimportant, and if you want to save $50-75, and if you can comply with Delaware General Corporation Law Section 220 electronically, then you might as well store your corporate documents electronically.
Related post: Printing Legends on Share Certificates ? Why and How
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
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