Every business requires legal documents that govern how the business is managed. Without these documents, there could be owner conflicts, inconsistent management, uneven enforcement of rules, and confusion the legal and financial obligations of the business. The clearer and more defined these documents are, the better and more smoothly the company will run. If you need help creating or understanding your corporate governance documents, contact Polymath Legal PC at 833-931-6418 to talk about the goals and needs of your business.
What Is Corporate Governance?
According to International Finance Corporation (IFC), corporate governance is the specific set of rules, controls, policies, and resolutions that are put in place to dictate corporate behavior. In other words, it is the system for how companies are directed and controlled so they can pursue and reach their objectives.
Corporate governance is important for many reasons. It shows investors company direction and business integrity. It helps to build trust with investors and with the community. It promotes financial viability by creating a long-term investment opportunity. It can have major ramifications for equity valuation.
Corporate governance also helps avoid or resolve conflicts between owners, provides management with direction on how to run the company and who to report to, and ensures that both everyone within the corporation and anyone outside it understands the rules, controls, and processes the company uses.
Why Do You Need Corporate Governance Documents?
Having corporate governance is the first step; putting it down on paper is the second step. If the rules, regulations, processes, and controls are not written down, it allows for people to misinterpret and misunderstand those rules, regulations, processes, and controls. Through the legal execution of corporate governance documents, every person involved in the business has access to the same transparent set of rules and controls so that shareholders, directors, and officers are all in alignment.
Corporate governance documents help communicate information throughout the company and to show accountability, transparency, fairness, and responsibility. These documents are also helpful as part of community and investor relations. Corporate governance documents are also useful for new investors to learn more about the company. They are also often used in the process of merging or selling a company to help the buyer(s) determine if the company aligns with their current corporate governance. These documents can also help ensure that any conflicts between owners are either avoided or more easily resolved. The qualified and dedicated business attorneys at Polymath Legal PC can help you create well-drafted corporate governance documents that align with your corporations goals and help the business run smoothly.
What Are Some Standard Corporate Governance Documents?
While every corporation has its own specific documents, there are some that are standard for most corporations to have. A few examples of these include:
- Corporate Leadership Chart: This chart names the board of directors and executive team members.
- Articles of Incorporation: These are the legal documents filed with the state to make the business legal. Not every corporation makes these part of their corporate governance documents, but many do.
- Bylaws: These are the key rules and regulations governing the corporation’s day-to-day operations. It usually outlines procedures management must follow and helps ensure a corporation runs smoothly, efficiently, and consistently.
- Stock Ownership Guidelines: These guidelines require executives and directors to own meaningful stock ownership during their tenure. A common structure requires executives to reach a specific ownership level within a specified period of time (often five years). These policies should be durable in both up and down markets to ensure compliance.
- Governance Structure: Like the corporate leadership chart, this chart outlines the main branches of the company’s governance and to whom each reports. It should also include the state and its affiliates.
- Code of Ethics/Conflict of Interest Policies: These policies should explain practices of the board of directors, outline the current membership of any established committees, disclosure and transparency policies, and treatment of minority shareholders.
- Environmental and Social Policies: These documents should address compliance with environmental and social laws and regulations, stakeholder engagement, integration of environmental and social governance in business activities, and the extent of board oversight of environmental and social issues.
- Annual Report and Financial Statements: Copies of annual reports, annual and quarterly financial statements, and auditor’s opinions for the most recent three years. This shows financial transparency to investors, the community, and others.
- Board Procedures: The yearly calendar of board meetings and the minutes of those meetings for the most recent year.
- Employee Stock Ownership and Stock Options: Approval processes, disclosure, and accounting treatment of any employee stock ownership or stock options plans the company had during the last five years. This should also include the amounts and value of securities of the company distributed to executives and employees according to these plans.
Determine the Corporate Governance Documents Your Business Needs
Some corporate governance documents are standard for most corporations, such as financial reports, bylaws and leadership charts. However, not all businesses should incorporate all of the corporate governance documents listed above, which means you can save both money and time by only creating the documents your corporation needs.
While you could look at similar corporations and see what documents they have, an effective way to ensure you get the corporate governance documents your business specifically needs is by visiting with an experienced lawyer.
Do You Need Corporate Governance Documents?
If you are ready to start drafting your corporate governance documents or have questions about existing ones, an experienced attorney can help draft new documents for your company or help you to understand the ones you currently have. Our dedicated business attorneys can help ensure that your legal and financial rights remain protected through the proper choice and execution of corporate governance documents. To request more information and assistance contact Polymath Legal PC at 833-931-6418.