A corporate resolution is a formal record of a corporation’s board of directors’ decisions and actions on behalf of the company. States require incorporated companies to use corporate resolutions for recording major business decisions. The company’s board of directors must vote to approve resolutions either during board meetings or in writing.
Resolutions help the corporation demonstrate that it’s an independent entity from its owners (shareholders) and guard against board decisions that might create potential conflicts of interest. Usually, resolutions are captured in meeting minutes. However, their form and structure may vary depending on the state and the corporation’s bylaws.
C Corporations, C Corporations that elect to be taxed as S Corporations, and other types of corporations use corporate resolutions. Limited Liability Companies (LLCs) or Limited Partnerships might also be required to issue resolutions to record their owners’ (members or partners) decisions and actions. LLC operating agreements and partnership agreements would identify any decisions and actions that require the creation of resolutions.
Resolutions vs. Bylaws
A corporation’s board of directors prepares and adopts bylaws when the corporation is first formed. Bylaws document the rules for how the corporation shall be governed. Resolutions are prepared as needed to document important decisions and actions taken by the board of directors on behalf of the corporation.
Why Are Corporate Resolutions Needed?
By issuing corporate resolutions for significant actions and decisions made by a company’s board of directors, the corporation demonstrates that the business is being treated as an independent entity separate from its owners’ and stakeholders’ personal actions. As with other compliance formalities, a corporation must use and record resolutions correctly. Failure to do so could result in piercing the corporate veil that protects the business’s shareholders, directors, and other stakeholders from being held personally liable for the company’s actions, debts, and legal issues.
Even in a corporation with just one board member (likely also the sole shareholder), corporate resolutions are required documents and necessary to uphold the company’s governance rules.
Corporate resolutions provide a paper trail of the board of directors’ actions. They help hold the board accountable with laws and regulations and its duties to its shareholders.
When Are They Required?
Corporate resolutions may be used for a variety of board actions on behalf of the company.
Actions that usually require resolutions:
- Entering into contracts
- Establishing corporate headquarters
- Buying real estate
- Selling company-owned real estate
- Leasing buildings, office space, or equipment
- Applying for a patent
- Registering a trademark or copyright
- Securing a loan or line of credit
- Approving new board members
- Hiring C-level executives
- Entering into a joint venture
- Approving changes to the corporation’s bylaws
- Approve filings with the SEC (Securities and Exchange Commission)
- Issue new shares of stock
- Opening a business bank account and designating signers
- Making changes to a company retirement plan
- Expanding the business into other states
- Change the company’s designated registered agent
Actions that don’t usually require resolutions:
- Accepting new customers
- Paying invoices
- Hiring new employees
- Firing employees
- Launching new products and services
- Actions taken by officers of the corporation (e.g., CEO, CMO, CTO), who have the authority to make day-to-day decisions and actions on behalf of the company
How Do You Write Corporate Resolutions?
Typically, a board of directors will create corporate resolutions and sign them at a board meeting. Before the meeting, all board members should receive a meeting agenda that includes any decisions or actions to be resolved.
Resolutions must follow a format approved by the state where the business is registered. A resolution might be included in the body of a meeting’s minutes or documented on a resolution form that accompanies the minutes of the meeting during which directors voted on and approved the resolution.
Examples of what corporate resolutions might include:
- Name of the organization and the body making the resolution (e.g., “Board of Directors of XYZ, Inc.”)
- Date and location of the meeting where the directors voted on the resolution
- Purpose of the resolution (e.g., to conduct business under a trade name)
- Names and titles of board members and other individuals present at the meeting
- Effective date of the proposed action or decision after the resolution’s approval
- Statement that confirms the members present at the meeting reviewed and agreed to the resolution (stating if it was approved by unanimous consent or lists how board members voted if it was not unanimous)
- Statement that gives officers of the corporation the authority to take actions to carry out the resolution (e.g., “RESOLVED FURTHER, that the Officers of this Corporation are authorized and directed to take any action necessary to effectuate the foregoing resolution.”)
How Are Corporate Resolutions Approved?
Resolutions included on the meeting agenda are discussed at the board meeting. Board members then vote, and the corporate secretary records their votes. A company’s bylaws should detail how many directors must vote in favor of a resolution for it to be approved (e.g., a unanimous vote, plurality vote, or majority vote).
Directors should write their signatures of approval on the minutes or the form that documents the resolved actions or decisions. Under some circumstances, resolutions might be approved by the written consent of directors without a board meeting. The corporate secretary files approved resolutions along with the meeting minutes in the company’s corporate records book.
Where Should You Keep Them?
Resolutions are legal documents and should be kept with a company’s other corporate records, such as its formation documents, bylaws, agreements, etc. Usually, companies do not have to submit resolutions to any government agencies. However, financial institutions might request proof of resolutions when corporations want to open a new account. Similarly, a company with which the corporation intends to enter into a contract may ask to see a resolution. There are other circumstances, too, when a company must show approved resolutions to demonstrate that the board of directors has authorized specific activities.
Business owners should make sure they understand federal and state recordkeeping requirements and keep resolutions and all other important documentation for the required length of time.
CorpNet Is Here to Help
As your trusted online business filing experts, CorpNet provides custom annual meeting minutes and can draft annual reports to help keep your business compliant in your record keeping. We can also help you with filings associated with important resolutions, such as foreign qualifying a corporation in another state and designating a different registered agent.
Not sure what your business needs to track each year? Download our Annual Compliance Checklist.