The Board of Directors guides the company towards its goals. Every decision they make is crucial, shaping the company’s future. Amidst these strategic choices, corporate resolutions are essential tools that document the Board’s decisions.
Corporate resolutions are not just paperwork; they are the foundation of effective governance, enabling the Board to lead the company confidently towards a successful future.
To learn more about the importance of corporate resolutions and how to implement them effectively, read our full article.
What is corporate resolution?
A corporate resolution is a document created by a corporation’s board of directors outlining specific corporate actions. Companies utilize corporate resolutions to document decisions, implement changes, and ensure legal compliance.
These actions typically pertain to financial matters (such as buying property or obtaining a loan) or high-level personnel management (such as appointing or dismissing an executive), but they do not cover routine daily operations.
Why is corporate resolution important?
Corporate resolutions play a crucial role in organizing and directing business decisions. Here are some of the reasons why these resolutions are important:
1. Create accountability
Resolutions establish the responsibilities and obligations that each party within the company must fulfill. With corporate resolutions, every decision can be traced back to the individual or team responsible.
2. Separate responsibilities
Company resolutions also help delineate roles and responsibilities among shareholders, the board of directors, and executive management.
For example, a resolution can grant the board of directors the authority to make strategic decisions, while operational management is responsible for daily execution.
3. Uphold legality
Corporate resolutions are binding legal instruments. They document decisions that have been formally approved by shareholders or the board of directors.
By adhering to company resolutions, the company ensures compliance with applicable laws and regulations.
Types of corporate resolution
Corporate resolutions record key decisions made by a company’s board of directors, like major financial choices and ownership changes.
They specify which officers can act on the company’s behalf, such as trading securities, opening bank accounts, withdrawing money, and writing checks. Banks, brokerages, asset managers, and title agencies often need this information to verify legal ownership and authorize transactions.
Changes to the company’s dividend policy, including increases or suspensions, also require a resolution. Dividends are payments, in cash or stock, given to shareholders as a reward for their investment in the company.
Other typical actions requiring a corporate resolution include:
- Purchasing real estate
- Applying for loans or credit
- Issuing debt, like corporate bonds, to raise capital
- Voting in new board members
- Changing the executive management team, such as hiring or firing a CEO
- Deciding executive compensation, including salaries and bonuses
- Issuing new equity shares
- Filing for patents
- Mergers and acquisitions
- Forming joint ventures or strategic partnerships
- Altering retirement plans, like issuing stock options to employees
- Modifying employee health benefits
- Leasing equipment or purchasing major assets, like factories
Example of corporate resolution
The board of directors of Company A plans market expansion; the company requires an additional capital injection. Shareholders of Company A need to hold a General Meeting of Shareholders to discuss and make decisions regarding the fundraising plan.
Resolutions serve to approve the agenda of the meeting prepared by the Board of Directors. The agenda typically includes discussions on financial reports, future business plans, and fundraising proposals.
Each separate action has a corporate resolution, and the board completes them by ensuring that the information in each document is accurate.
The essential outline of corporate resolution
The proper form of a corporate resolution is determined by your state’s business services department, but generally, a corporate resolution should include:
- Date of the resolution.
- State in which the corporation is formed and under what laws the corporation acts.
- Signature of the officer appointed to sign the corporate resolution. Typically the chairman of the board of directors or the corporate secretary.
- Document title with its purpose. For example, “Resolution to Apply for a Bank Loan.”
- Statement indicating the resolution has the approval of the board members. If the resolution is approved unanimously, this statement needs to be included. If the approval is not unanimous, you need to include a list of board members and their “yes” or “no” votes.
- Statement indicating the board’s intention in making this resolution. For example, “Through this resolution, the intention of the board of directors is to appoint a bank account….” As a note, this statement is optional. You can include it or not.
- “Therefore” or “resolved” statement to specify the action to be taken. For example, “Therefore, with the written approval… the appointment of bank XYZ as the company’s fund depository has been approved.”
Conclusion
Corporate resolutions are more than just formalities; they serve as the foundation for long-term growth and success. By embracing these essential governance principles, businesses can make decisions confidently and transparently, promoting accountability and safeguarding the interests of stakeholders.
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Reference
Investopedia. ‘’Corporate Resolution: Definition, How They Work, and Types’’
Legal Zoom. ‘’Corporate resolution guide: Examples, tips, and how to write one’’
