A corporation has a duty to its shareholders to not only make decisions in the best interest of the shareholders, but also to keep them informed of major decisions that are made by the board of directors. While decisions can be communicated in a multitude of ways, such as emails or newsletters to shareholders and investors, a more formal way of documenting the major decisions of board of directors is through a Corporate Resolution.
Before we begin discussing corporate resolutions, let’s quickly review what a corporate charter is. While doing your initial LLC research, you may have stumbled across the term “articles of incorporation”. Well, the corporate charter and the articles of incorporation are interchangeable terms to describe the same thing.
Corporate charters are the birth of a business entity. They include the corporation’s name, its purpose, it’s for-profit or nonprofit designation location, number of shares to be issued (only for S and C Corps), names of the founders and names of the company’s directors. This document is then filed with the state where you will incorporate in. The corporate charter is filed with the Secretary of State in whatever state you are incorporating. If your charter meets the criteria set forth by the state, your business entity legally exists. A word of caution though – you must have your Corporate Charter finalized and approved. If you begin conducting business without an approved Corporate Charter, you and your personal property are not protected against any sort of litigation that might occur.
Types of Resolutions
There are three types of resolutions that can be passed:
- Ordinary Resolutions: 50% of the directors/shareholders were present at the meeting
- Special Resolutions: at least 75% of the directors/shareholders were present at the meeting
- Unanimous Resolutions: 100% of the directors/shareholders present at the meeting.
If you are a sole owner and shareholder of your LLC, you can pass a resolution just by signing the resolution document. You can then keep record of that as to inform future shareholders and investors about previous decisions you have made.
Types of Decisions and Communication:
It’s important to remember that your company does not need to call the Board of Directors for every decision that needs to be made. However, any major decision that affects the overall all objective of the company needs to go through the corporate resolution process. Types of decisions that should go through the process are:
- Hire and appoint officers of the corporation
- Hire and dismiss employees
- Refer a matter to a subcommittee
- Approve a merger with another company
- Approve the company to take on debt
- New land
- Purchase of equipment
- New Facilities
- Sale of company assets
- Issuing of stock and class of stock
- Alter the ownership structure of the corporation
All of the corporate resolutions that have been passed need to be filed with the appropriate regulatory body in which the corporation is registered with. That means that if you are a loan and accounting firm, you need to file your resolution with whatever banking institutions you work with if the resolution is to bring on new employees that can make transactions on behalf of your company. Additionally, all resolutions must be shared with all shareholders and also presented at the yearly All General Meeting of the corporation. During this meeting, your Board of Directors need to be present to answer any questions about the resolutions that have been passed.
The Big Picture
You don’t need a corporate resolution for everything, but you definitely need to maintain records of decisions that have been made by the board of directors. These high level decisions should be shared with shareholders and investors and any regulatory body that you may do business with or are required to report to. Corporate resolutions are not only there to communicate and record changes within a company, but it allows for a look back on how previous decisions were made and who made them.