For a relatively short and simple document, a corporate resolution can be of the utmost importance. The use of corporate resolutions is imperative to the lawful continuation of your business. So today, I am going to walk you through the basics of corporate resolutions and why they are so important.
What is a corporate resolution?
A corporate resolution is a document that creates a formal written record of decisions made by a corporation’s board of directors. Resolutions are binding on companies and should be safely saved and stored. Resolutions may be voted on during a meeting or they may be used in lieu of a meeting. Resolutions adopted in lieu of a meeting serve the same purpose as normal resolutions, however, they can be adopted exclusively through writing (making them especially useful and important in socially distant times like these).
Why are corporate resolutions needed?
One of the most significant advantages to incorporation is the limited personal liability it gives the corporation’s owners. This limitation of liability means that the owners of a corporation are not personally liable for the debts of the corporation because the corporation is considered a separate legal entity. To maintain this separation and limitation of liability, corporations must act independently from their owners. Resolutions are tools essential to preventing owners from piercing the corporate veil, or in other words, maintaining independence from the corporation. Resolutions help ensure that decisions made by the board of directors do not create a conflict of interest with the corporation’s owners, as well as documenting the board of director’s actions. Resolutions are compliance mechanisms. They are required, by law, for the most important decisions made by boards of directors. They help the board of directors uphold their legal responsibilities as well as their fiduciary duties to their shareholders. They may also be required by government agencies if the corporation is seeking to pursue actions like opening or closing a financial account. Government agencies may also request corporate resolutions to ensure that the corporation is complying with applicable laws, regulations, and its own corporate bylaws. Corporate resolutions are crucial to the successful continuation of any corporation.
What types of decisions warrant a corporate resolution?
All major decisions made by a board of directors warrant a resolution. The following are examples of decisions that warrant resolutions:
- The purchase, sale, or lease of business property;
- The approval of new board members;
- Matters concerning intellectual property rights;
- The approval of amendments to corporate bylaws;
- The authorization of a loan or line of credit;
- The issuance of stock to new or existing shareholders; and
- Starting a joint venture.
What needs to be included in a resolution?
A corporate resolution has a few essential components. A resolution should include:
- A descriptive title;
- The date and location of the meeting at which the resolutions occurred, unless the resolution is in lieu of a meeting, in which case you must indicate that;
- The effective date of the resolution;
- The name of the company and state of incorporation;
- The names and signatures of the board of directors;
- Which laws the corporation is acting under;
- A “whereas” statement(s) that identifies the specific intention(s) of the board of directors;
- A statement of consent by the board of directors. If the statement was unanimous, indicate that, otherwise identify each member’s vote; and
- A “resolved” statement(s) that indicates which intentions were approved.
Proper use of corporate resolutions will ensure that your business continues to operate successfully and lawfully. Be sure not to underestimate the importance and usefulness of these documents.
P.S. Don’t forget our Trademarks webinar on Thursday, Jan. 14! Trademarks: https://www.eventbrite.com/e/134033920063