Understanding Corporate Resolutions
What are corporate resolutions?
Corporate resolutions are formal records of actions taken by a business. Corporations, and some LLC’s (depending on the terms of the operating agreement) are required to follow certain procedures when taking actions beyond the scope of ordinary business activity. This includes actions like amending the bylaws, electing or removing officers and directors, and voting on significant transactions. Corporate attorneys often draft these documents in accordance with the business formation documents.
What is the purpose of a corporate resolution?
Compliance: Most bylaws and close corporation agreements (and state law) require certain procedures for corporate actions, including voting issues. Proper resolutions ensure compliance.
Maintain Corporate Veil: Failing to follow corporate formalities will result in a court disregarding the entity and holding owners liable for claims against the business.
Required in Business Transactions: Any lender or transactional party will require the other party to provide a resolution approving the transaction.
When to use a resolution
- Issuing stock/shares
- Amending bylaws / close corporation agreements
- Appointing or removing officers
- Appointing or removing directors
- Approving large transactions, loans, or debt
Do LLC's need resolutions?
LLC’s are not required to have operating agreements, and may only have one owner. In these situations, resolutions are not required.
An LLC that has more than one owner should utilize resolutions. LLC’s with multiple members need operating agreements, and a multi-member operating agreement should set forth voting requirements. To maintain the corporate veil, these companies need to use resolutions to formalize business actions.
What are the contents of a resolution?
- Recitals: statements of the purpose for the current resolution.
- Resolution Statements: Statements of the actions being taken by the shareholders/directors/members as a result of the resolutions.
- Authority to execute actions: Authorization of a representative to do what is necessary to effectuate the resolutions.
About
Attorney Collier started his own law firm straight out of law school and has been practicing law in Ohio for 5+ years. During that time, Joe focused on business law and litigation, gaining some exposure to intellectual property law. While running his firm in 2021, Joe decided to go back to school and get his patent license. Since then, Attorney Collier has been focusing on protecting innovators and entrepreneurs through his expertise in intellectual property and business law.