A corporate resolution formally documents the decisions of a corporation’s board of directors. The board votes on resolutions during a board meeting or in writing. All states require corporations to use corporate resolutions to record important business decisions. Without proper corporate resolutions, owners could lose their limited liability protections.
When starting a company, you might reach out to an attorney or online legal service to make sure you’re complying with legal requirements. Among the different types of business entities, corporations have the most onerous legal responsibilities. For example, corporations must draft and approve a corporate resolution whenever the board of directors makes an important decision.
It can be tempting to skip this step and make decisions informally for your business, especially when speed is of the essence. However, you might end up hurting your company in the long run if you fail to issue corporate resolutions. In this guide, we’ll explain why corporate resolutions are important, when they’re needed, and how to write a corporate resolution. We’ll even include a sample corporate resolution form for you to use as a template.
One of the biggest advantages of starting a corporation is limited liability protection for owners. Both C-corporations and S-corporations are considered legal entities separate from their owners. This means that the owners aren’t personally liable for the debts of the C-corporation or S-corporation.
In order to maintain limited liability protection for owners, the corporation must act independently from the owners. Otherwise, a court can pierce the corporate veil, holding owners personally liable for the acts of the corporation. If that were to happen, creditors and legal claimants could come after the personal assets of the owners (e.g. their house, car, or personal bank accounts) to settle business liabilities. This is obviously something that you want to avoid if you have a corporation.
Issuing corporate resolutions is one way for corporations to demonstrate independence and avoid piercing the veil. In fact, all states require C-corporations and S-corporations to issue corporate resolutions to document important board of director decisions. Resolutions are required even if you’re the sole shareholder of your corporation and the only member of the board.
Apart from helping to preserve limited liability for owners, corporate resolutions are also a way for the board of directors and shareholders to influence the company. Business owners are responsible for answering to shareholders and to the board. These parties can exert influence and cause change within the company by approving corporate resolutions.
Corporate resolutions are required whenever the board of directors makes a major decision. The resolution acts as a written record of the decision and is stored with other business documents. These board resolutions are binding on the company.
The following types of decisions require corporate resolutions:
You typically don’t need to write corporate resolutions to document actions taken by officers of the corporation. Officers include the chief executive officer (CEO), chief technology officer (CTO), chief marketing officer (CMO), and others holding similar titles. These officers are elected by the board and have the authority to take day-to-day actions on behalf of the company. For instance, these officers can hire employees (not C-level executives), launch new products and services, and acquire new customers—all without a corporate resolution.
If you’re an officer of a corporation and are unclear if something requires board approval, corporate lawyer Shawn McBride says that it’s best to consult with a lawyer. “If you’re unsure whether you need board approval,” McBride says, “this is a good time to bring in a lawyer. Your lawyer should be able to educate you on what types of decisions go into resolutions and which don’t. Speaking very generally, major decisions go into resolutions, and day to day items don’t.”
In most cases, you don’t have to submit corporate resolutions to the Internal Revenue Service (IRS), the state government, or any other government agency. Once the board votes on a resolution, it should be simply stored with the company’s meeting minutes, incorporation papers, and other business documents.
That said, there are a few situations in which you might be asked to show proof of a corporate resolution. Banks might ask for proof of a corporate resolution if an individual representing the corporation wants to open, change, or close a financial account. Similarly, if an officer wants to enter into a contract with another firm, that company might request proof of a corporate resolution to show that the officer is acting with the backing of the board. You might also need to furnish corporate resolutions during the course of a legal proceeding or if a director or important shareholder wants to review the company’s decisions.
A corporate resolution can be evaluated in one of two ways. The resolution can be included on the board’s agenda prior to a scheduled board meeting and circulated to all the directors. The directors will then vote on the resolution during the meeting. Alternatively, the resolution can be approved by signed, written consent of the directors without holding a board meeting. Depending on what’s in the company’s bylaws, approval of the resolution might require a plurality vote, majority vote, or unanimous consent.
In either case, you’ll need to include the following information in a corporate resolution form:
Here’s a sample corporate resolution form from Rocket Lawyer. Rocket Lawyer will walk you through a series of questions to help you customize a corporate resolution form for your business’s needs.
After the board votes on a corporate resolution, the corporation’s secretary is responsible for verifying the resolution and logging the outcome of the vote in the company’s meeting minutes. This process is called certifying the resolution. “The secretary takes the resolutions of the company as adopted, and adds a certification with their signature stating that the resolution was approved at the meeting,” says McBride. If the resolution doesn’t pass, the secretary will note that in the meeting minutes, as well.
The secretary should store the meeting minutes and a copy of the corporate resolution form in the company’s corporate records book. The meeting minutes and records book can be in either physical or electronic format.
If the resolution passes, the company should take the action necessary to implement the resolution. This action might occur through the board members or through the officers of the company. In the joint venture example, the CEO might begin negotiating terms with the partner company after the resolution passes.
Most of the time, corporate resolutions record decisions taken by a company’s board of directors. These resolutions are called board resolutions. However, shareholders can also issue corporate resolutions, called shareholder resolutions or shareholder proposals. According to Joshua S. Bauchner, a shareholder in New Jersey law firm Ansell Grimm & Aaron, PC, “Any time a board takes formal action, it must be memorialized in a resolution, often in the form of a legal document, which will be or has been put to a vote at a company’s board meeting. Shareholders usually pass shareholder resolutions when they believe the board is not acting in the best interests of the corporation.”
Shareholder resolutions ask the board of directors to take a particular action. Unlike board resolutions, shareholder resolutions are non-binding on the company. The board might choose to, but need not, implement what the shareholders are asking for.
Shareholders can present resolutions at the corporation’s annual meeting. If the corporation has publicly held stock, then shareholders wishing to make a shareholder resolution have to follow the guidelines set by the SEC. In general, the SEC guidelines permit resolutions only from shareholders who have continuously held at least $2,000 of the company’s stock for a year or longer.
If a shareholder meets these requirements, then the board can choose to bring up the resolution for a vote at the next shareholder meeting. If the board has objections, they have to put the objections in writing and allow the SEC an opportunity for review. If the resolution comes up for a vote and a majority of shareholders approve, the board might take up the proposal (but they don’t have to) at the next board meeting. Shareholders are limited to making one shareholder resolution per company each year.
In many cases, activist groups use shareholder resolutions to influence a company’s board of directors. In 2011, for example, an environmental group called As You Sow successfully pushed McDonald’s board of directors to replace foam cups with paper cups. People for the Ethical Treatment of Animals (PETA) regularly buys stock in pharmaceutical and cosmetics companies and issues shareholder resolutions to lobby against animal testing. It’s important to be aware of the influence and power of shareholder regulations if you own a corporation.
Corporate resolutions are legally required in all states to preserve limited liability for corporate owners. However, corporate resolutions also play a practical purpose, which is to let corporate owners know what the board of directors and shareholders think. In order to be a good small business owner, you need to know what your company’s stakeholders see as priorities, and corporate resolutions are designed for this purpose. If you need to write a corporate resolution form, Rocket Lawyer can help you get started.
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.