Every business takes decisions, which must be agreed upon and documented. That is precisely what a corporate resolution accomplishes. Yes, corporate resolutions are subject to particular procedures to ensure that they are thorough, clear, and correct.
Why Does A Corporation Needs Corporate Resolutions?
A corporate resolution records the activities and decisions of the board of directors of a corporation. Essentially, whatever the corporate board of directors undertakes must be documented in a resolution. These resolutions are intended to establish papers that keep the board responsible and demonstrate to licensing boards, and state and federal authorities (including the IRS), that the board is carrying out its fiduciary obligations.
Corporations are distinct legal entities from their owners and are subject to independent responsibility from them. To maintain this distinction, the company must operate independently of its owners. This is referred to as a corporate shield or corporate veil, and it protects the owners from the corporation’s obligations. Corporate resolutions assist in demonstrating this self-sufficiency.
Corporation boards are not required to adopt resolutions for day-to-day business actions such as recruiting non-executive workers, making debt payments, or acquiring new clients. These actions are directed by corporate executives (CEO, president, etc. ), who have been empowered by the board of directors.
Both C companies and S corporations are obliged to have corporate resolutions.
Typical Corporate Resolutions
For each significant decision taken by the board of directors, a corporate resolution must be on file. Here are several sample corporate resolutions, ranging from the first formation paperwork to the business’s closure.
At the time of incorporation, the board may adopt corporate resolutions approving new board members and executives, adopting the initial bylaws, opening a corporate bank account with a specified bank, and assigning signers for that account.
Additional resolutions that a board of directors may create throughout the course of business include the following:
- To certify that a new board member was elected
- To maintain a record of a board decision
- To record a shareholder decision
- To authorize the hiring of a new employee
- To authorize the sale of shares (a share offering)
- Purchasing or selling real estate on behalf of the corporation
- Corporate officials to be appointed
- Choosing to form a joint venture with another firm
- Establishing a presence in a new state or states
- Adopting a new marketing strategy, which includes Acquiring a new trademark
- Obtaining a loan
What to Include in a Corporate Resolution Form
While the precise format of a corporate resolution is established by your state’s business services department, a corporate resolution must generally include the following:
- The resolution’s effective date
- The state in which the organization was incorporated and the laws under which it operates
- Signatures of officers designated to sign corporate resolutions––typically the chairperson of the board of directors or the corporate secretary For instance, “Resolution Accepting Bank Deposit.”
- A phrase stating that the resolution has the board members’ consent and agreement. Declare this if the resolution is passed unanimously. If unanimous consent is not obtained, you must include a list of board members and their “yes” or “no” votes.
- (optional) A “whereas” statement or series of statements indicates the board’s intent to draft this resolution. For instance, “Whereas this board intends to establish a bank account.”
- A statement beginning with “therefore” or “resolved” that specifies the action to be taken. For instance, “Therefore, by written unanimous consent…the Corporation’s designation of XYZ bank as a depository is approved.”
How a Corporate Resolution Is Created
The majority of corporate resolutions are drafted and signed during a corporate board of directors meeting. The following is a typical procedure:
- The agenda for a board meeting is produced before the meeting and distributed to all board members, along with the issue to be resolved.
- The agenda item for the resolution is brought up and debated during the meeting.
- The resolution is then voted on and the results are tabulated.
- The meeting’s minutes should include information about the resolution that was passed (or not).
After the Corporate Resolution Is Signed
The secretary of the company is responsible for filing all corporate resolutions in the corporate records book. These resolutions are not required to be presented to any government agency, but they must be available in the event that the corporation is audited by the IRS or another government agency, or by the state’s business department.
Resolutions may also be filed by a corporation’s shareholders. These resolutions are frequently adopted at the corporation’s annual meeting. If the corporation’s shares are publicly traded (sold to the public), the Securities and Exchange Commission regulates the shareholder resolution process (SEC).
These resolutions are non-binding, which means that the corporate board of directors is not compelled to take any action to implement them. They are frequently given by activist organizations in an attempt to persuade the board of directors on environmental, social, ethical, or human rights problems.
Would you like to know the safety measures for today’s businesses? Read our blog to find out.
Meta Title: What Is A Corporate Resolution?
Meta Description: How to write a corporate resolution for your firm, including what to include and what to do the following approval.