Corporations entail more formalities and routine paperwork to maintain those formalities than say LLCs. Mostly it’s due to their more complex management structure and governance process. Since corporations could split ownership between millions of shareholders, it’s vital to have functional and efficient internal rules ensuring smooth and hassle-free decision making. And documents put those decisions in writing and make them binding. A corporate resolution is one of such instruments that formalizes key governing decisions and helps bring them to life. Want to learn more about this in advance of business incorporation? Then keep on reading our overview.
A Corporate Resolution: What Is It and Why Is It Needed?
A board of directors is the main corporate governing body normally appointed by shareholders and making operational decisions on their behalf. The board of directors manages the business on a regular basis by outlining the operational policies, appointing executives, working out marketing strategies, distributing cash flows to maintain business growth, and more. In other words, the managing board does everything to ensure consistently successful company performance that will bring profit and keep up with established business goals and objectives. Yet, business governance is a tricky and complicated process that requires due diligence and close attention to detail. To realize the targeted business strategy, the board of directors holds meetings and makes decisions on the actions to be taken. And a document listing and outlining those core decisions is called a corporate resolution. A corporate resolution could be either a part of meeting minutes or is issued as a separate instrument providing some authorities and powers, describing some policies, or outlining the compensation distributions.
A corporate resolution is an important legal tool that serves as a written trail of crucial decisions made by the board and actions taken. It proves that the board members act within their powers and deliver to their responsibilities. Besides, corporate resolutions further maintain the so-called corporate veil by showing that a company functions independently of its owners.
On the other hand, though, not all business-related issues require a corporate resolution. Thus, routine activities such as negotiating with customers, paying scheduled expenses, hiring workers, and alike are the authority of executive managers designated by the board of directors. And corporate resolutions are more about strategic and crucial issues such as giving access to bank accounts, signing cheques, and issuing debts.
Types of Corporate Resolutions
As stated above, corporate resolutions are more of an official character and are reserved for more important decisions rather than daily operations. Those decisions cover multiple aspects from the business incorporation and dissolution to changes in the company structure to financial and management issues and more. To better understand the types of corporate resolutions, let’s take a closer look at the situations and actions that normally require a corporate resolution:
- Introducing new board members via voting;
- Appointing corporate officers and outlining their powers;
- Authorizing an officer to open business bank accounts and sign cheques;
- Hiring new employees that will take strategic positions in the company;
- Dividends distribution and their payment rules in each specific case;
- Making changes in executive management structures by withdrawing the managers or re-assigning their current roles;
- Issuing new shares and issuing debts to raise added capital;
- Selling shares;
- Buying or leasing real estate and equipment for the company;
- Approving major acquisitions or company mergers;
- Making a decision on joint ventures to set up partnerships with other companies;
- Setting up affiliate offices in other states;
- Changing retirement plans and employee health benefits;
- Filing for patents and purchasing trademarks;
- Agreeing on customer and supplier contracts;
- Reviewing and approving the company annual budget;
- Approving marketing and sales strategies;
- Adopting insurance policies and plans;
- Assigning compensations and bonuses for executive managers;
- Accepting company by-laws and recording board or shareholder decisions.
How a Corporate Resolution is Created
Most often than not, corporate resolutions are made up during the board of director meetings and the whole process of adopting a resolution is as follows:
- Normally, the meeting agenda is set up well before the meeting itself and it’s the directors who propose the points to be considered including the issues requiring the resolution;
- During the meeting, the issue to make a resolution on is to be raised and discussed by the board in detail;
- To pass the resolution, the board should approve it by voting;
- Meeting minutes should take notes of the discussion and record the decisions made along with voting results.
Noteworthy, to create a resolution, physical board meetings are a must. The resolutions should be either approved by the vast majority of board members or voted unanimously. Unless enough company members support the resolution, it can’t be adopted.
Requirements for the Execution
A corporate resolution is one of the corporate by-laws, which is more than a mere formality. It’s a required legal document you need to have in place to prove that the board of directors sticks to current laws and regulations and acts within their authority. These resolutions could be reviewed both by the company shareholders and by state regulating bodies within compliance checks. So, though a corporate resolution form varies by state, there is certain info this document should cover:
- The date on which the resolution is discussed and approved;
- The state of your business incorporation to specify the state laws your corporation is to observe;
- Signatures of authorized persons entitled to sign this type of document;
- Appropriate document title reflecting the purpose of the resolution it covers;
- A phrase clearly showing that resolution is agreed by the members and approved either unanimously or by the majority of votes stating each board member name in this case;
- In the end, there should be a statement specifying the action to be taken as a result of the approved resolution.
After a corporate resolution is signed, it should be diligently stored along with other essential company documents. Though the board resolutions are not to be filed with any regulatory agencies or state bodies, they are important instruments evidencing the core steps and stages in your business development. Besides, those documents could be randomly requested by financial institutions, shareholders, or regulatory bodies.