A secretary is a “person entrusted with secrets”. The term came into use in the early 1400’s, and was used to describe a person who kept records and write letters for a king. In the late 1500’s, as parliaments took control of government from the kings, it began to be used as a title for ministers presiding over the executive departments of the state – such as our Secretary of State or of Defense. The word itself comes from the from Medieval Latin secretarius, derived from the Latin secretum “a secret, a hidden thing”. We derive our English word “secret” from the same latin root.
What is a Corporate Secretary?
A “Corporate Secretary” is an officer of a business corporation. All corporations are required to have at least three officers: a President, a Treasurer and a Secretary.
The primary responsibility of the Corporate Secretary is to ensure that Board members have the proper advice and resources for discharging their fiduciary duties to the shareholders. The Corporate Secretary is also responsible for ensuring that the minutes of each Board meeting reflect the proper exercise of those fiduciary duties.
The Corporate Secretary is also a confidante and resource to the Board and senior management, providing advice on board responsibilities and logistics. The Corporate Secretary is a senior, strategic-level corporate officer who plays a leading role in the company’s corporate governance.
What are the Corporate Secretary’s Specific Roles and Responsibilities?
- Corporate Record Keeping: The Secretary maintains a current record of key corporate documents, including bylaws, meeting minutes and records of actions, shareholder records, records of required state corporation and regulatory filings, and key contracts;
- Corporate Filings: The Secretary is responsible for ensuring the Corporation is current on state corporation law and regulatory filings;
- Board and Shareholder Meetings: The Secretary manages all board and shareholder meeting logistics, ensures proper notices have been sent, attends and records the minutes of all board and shareholder meetings, advises the Board on its roles and responsibilities and facilitates the orientation of new Directors and assists in Director training and development;
- Stock Records: The Secretary oversees the logistics of stock issuance and transfer, including the issuance and cancellation of share certificates and keeping the shareholder records up to date.
Do small businesses need a Corporate Secretary?
All corporations must have a corporate secretary. Often, in small businesses, the attorney appoints one of the founders as Secretary and that person never knows what they are supposed to do or does any of it. Signs that a small business should have had an active corporate secretary is when the corporation is sued and cannot produce the required business records to show it was not merely the alter ego of its founders, or when a regulatory filing is not made, or when there is a lawsuit between the partners and the records are out of date and do not reflect the reality of how the company was governed. In other words, the owners discover that they need a Corporate Secretary when it is too late and the oversight is expensive.
If the small business has shareholders that are not active employees or managers of the corporation, an active corporate secretary is imperative. If the small business is a business partnership that has more than one owner/manager, then having an active Corporate Secretary is imperative. If the small business is in an industry where there are numerous regulatory filings to track, such as the requirement to file annual reports in several states or to file annual or biannual licensing renewal, then having an active Corporate Secretary is imperative. The only corporation that can reasonably afford to do without an active Corporate Secretary is a solo entrepreneur operating in just one or two states in a business with few regulatory hassles.
What about LLC’s?
There is no required office of “Secretary” in a limited liability company, and LLCs generally have more relaxed record keeping and reporting requirements than corporations. However, if your small business LLC has members who are not active in the business, or has multiple members, or is in an industry where there are numerous regulatory filings to track, then it is a good idea to create a Company Secretary position.
Does the Secretary need to be full time?
The Secretary needs to be able to devote as much time to record keeping and governance as your company needs. Active Corporate Secretaries can also play key roles in staying abreast of and recommending new governance ‘best-practices’ to the management team and board, and can help the board keep their focus on long-term strategy rather than getting too focused on near term imperatives. That being said, for many small businesses, Corporate Secretary is not a full time position. The solution is either to make one of your full time partners or employees also the Secretary, or to hire an outsourced Corporate Secretary. Should you decide to stay in-house, the key is to make sure the person selected has the knowledge and skills to do the job, and has the time to devote to it, so that the required record keeping is not overlooked while the person focuses on their primary responsibility.
Should our lawyer be our Corporate Secretary?
A legal background is not required to carry out the duties of the Corporate Secretary. The corporation’s attorneys are responsible for giving the company legal advice. The Corporate Secretary is responsible for giving the company governance advice. In fact, having a Corporate Secretary who also provides legal advice creates difficult questions about whether a particular communication made to management is legal advice – which may be subject to the attorney-client privilege – or general corporate/business advice, which is not.
The “dual hat” corporate secretary/lawyer must always be careful to distinguish (and, as secretary, record) which “hat” is being worn, and whether it is legal or governance advice that is being given. If there is litigation between the partners or between management and non-managing shareholders in the future, you can be sure that the dual role will become litigated, the lawyer is likely to be disqualified, and the entire mess will be expensive.
The corporate lawyer has a key role to play in the life of the corporation, even a small business corporation. The lawyer must help to train the Corporate Secretary and help the Corporate Secretary identify the line between governance advice and legal advice, so that the Corporate Secretary does not unwittingly engage in the unauthorized practice of law.
Corporate Secretary, or Company Secretary in an LLC, is a key role that requires someone with the training, and the time, to perform it well. Read any account of the causes of expensive business litigation and you will find poor record keeping, especially of ownership and governance records, to be cited as one of the most common factors leading to protracted lawsuits. Good records allow cases to settle more quickly. Poor record keeping can also be the cause of a corporation’s shareholders losing their limited liability, or of a company losing its regulatory authority or state licensure to do business. Finally, poor record keeping distracts the board from long term planning and causes the boards to lose their focus and their institutional memories. A good Corporate Secretary is an asset to your business.