Understanding When a Board of Directors Needs Corporate Resolutions
As its name would imply, corporate resolutions are only necessary for business entities that are set up as corporations. There are many subcategories of corporations, but two of the most common types, S corporations and C corporations, both require corporate resolutions.
Corporate resolutions are needed when a decision must be made that exceeds the responsibility and/or authority of the company officers. Consequently, most day-to-day business activities do not require a corporate resolution, as decisions involved in those tasks are made by the appointed officers. This can include hiring and terminating non-executive employees, selling products and services, making minor adjustments to business strategy, and paying company debts.
Corporate resolutions will generally reflect some significant shift in the business as agreed upon by the board of directors. The written resolution will serve as an official record or event and must follow the format required by the state in which the business is incorporated.
Examples of decisions and events that typically require a corporate resolution include:
- Initial incorporation. Corporate resolutions will be necessary to formally and legally incorporate the business in the first place. This will include establishing the company’s first officers, board of directors, and bylaws. It will also generally require the setting up of the first corporate bank account.
- Corporate officer changes. If the board decides one or more officers must be removed from their current position, a resolution will be required to commemorate the change. This is also true in situations where new corporate officers are appointed.
- Hiring of significant executives. There may be situations where the board will need to approve major changes to personnel that do not necessarily involve corporate officers. This is especially true in situations where a hire could fundamentally change the strategy of the business. If the board has any input on the hire, it should be documented.
- Board of director changes. Similarly, the board must document any changes to itself, including the voting in of new members and retirement or removal of existing ones.
- Board decisions. Because a corporate board of directors only makes major decisions, every vote must be documented.
- Shareholder decisions. If shareholders vote on an issue, the final result must also be recorded in a corporate resolution.
- Share offerings. The board of directors will in most circumstances need to approve any new offering of shares. This decision must be documented.
- Large financial transactions. The taking out of corporate loans and approval over other major decisions involving company financial operations will usually require documentation.
- Purchase or sale of corporate real estate. If the company is preparing to sell or buy property, such as a scenario where a corporation is purchasing a new headquarters building, a corporate resolution is necessary.
- Partnering with another business in a joint venture. If the board permits the corporation to pursue a joint venture agreement with another business entity, the decision must be recorded.
- Expanding the business. If a corporation is poised to dramatically expand its business into one or more new states, the board will need a corporate resolution.
- Fundamental changes to business strategy. While corporate officers can manage day-to-day needs of business strategizing, more substantial changes to a corporation’s direction will likely require corporate approval. This can include drastic changes to overall marketing strategy or massive changes to a business model, including new goods and services.
- Dissolution. In some situations, a corporation might choose to dissolve or dismantle itself. This will naturally require the approval of the board and thus a corporate resolution.
These are only some of the most common resolutions. Our Charlotte corporate resolution attorneys can advise on what actions require corporate resolutions under state law.
What Is Included in a Corporate Resolution
A corporate resolution will need to be promptly written ahead of a formal vote. You can usually anticipate these occurrences, as most corporate boards will set agendas prior to meeting. The terms of the resolution will then be discussed, debated, and voted upon. Once the votes are recorded, the completed resolution can be signed and stored.
Writing a corporate resolution is not as simple as recording votes on a broad issue. Businesses incorporated in North Carolina will need to follow the format and guidelines specified by the state when drafting their resolutions.
Elements your corporate resolution will need include:
- The date. This should reflect the date the matter at hand was voted on.
- The state in which the corporation is incorporated. This is important, as it determines what specific recordkeeping rules are required.
- Signature of an eligible officer. Corporate boards will often appoint a board chairperson who has the responsibility of signing corporate resolutions. A corporate secretary can also be appointed for this purpose.
- Title reflecting the decision or event. For example, “Appointment of New Chief Executive Officer.”
- Vote affirming majority consent of the board. The specifics of how board votes are conducted will depend on your corporation’s bylaws, but you will need to attest that the board approved (or rejected) the resolution. If a formal, person-by-person vote occurs, those in favor and those opposed should both be documented by name.
- The resolution statement. This succinctly describes the action the board is authorizing through its affirmative vote.
Additionally, a corporate resolution can potentially include an “intentions” statement. This seeks to describe the problem – for example, a vacancy in a corporate officer position – that justifies the action of the resolution statement.
Why Your Board Must Maintain Corporate Resolution Records
Once a corporate resolution has been ratified, it must be stored in the corporate records book. This is a private collection of documents that tracks every major decision your corporate board has made since the business’s inception.
Maintaining corporate records is required by state law. It should be noted that the records do not need to be a public document, and you are not required to regularly submit resolutions to any government entity. However, a corporation is required to turn over corporate records should a government agency, like the Internal Revenue Service (IRS), request them as part of an official audit. A corporation can face harsh penalties for failing to keep the appropriate records.
Our Charlotte corporate resolution lawyers understand that the need to create corporate resolutions for just about every board decision can be overwhelming and stressful. This is especially true for new corporations struggling to navigate their state’s sometimes-labyrinthine laws. Our team at Oakhurst Legal Group is prepared to assist you in the ongoing process of maintaining accurate, thorough corporate records. Whether you are a new growing business or a longstanding titan of industry, we are prepared to give you our attentive, personalized service and work with you long-term.