What is a Corporate Resolution?

When a company begins to grow and take on shareholders, a board of directors is formed in order to make key decisions for the corporation on their behalf.  In order to ensure legal compliance, reduce liability, and create accountability for the board of directors, a Corporate Resolution will need to be put into effect.  Corporate resolutions can also be referred to in multiple ways depending on the business’s organizational structure.

While the name for this document may change between entities, it will generally serve the same function.  For example, Limited Liability Companies (LLCs) can also use resolutions, however, these are optional for LLCs and typically used to keep record of company decisions.  On the other hand, a Partnership usually does not need to pass a resolution for the partners to act.

While a Corporate Resolution doesn’t typically document day-to-day operations within the company, it does outline specific actions taken by the board of directors that could directly impact its shareholders, such as financial decisions as well as executive level personnel changes.  Since the board of directors is acting on behalf of the corporation’s shareholders, it has a fiduciary duty to act in their best interest.  

A Corporate Resolution provides:

  • A tool for holding board members accountable and can deter them from making decisions in their own self-interests.  It is a legally binding document that is signed by each member of the board and kept on record for shareholders to evaluate the board’s performance at any given time.
  • A “corporate shield” for shareholders by demonstrating that the board of directors acts independently and therefore, show that the shareholders are not liable for any actions taken by the corporation.
  • A paper trail for auditors or legal entities when determining legal compliance on behalf of the corporation. 

Since Corporate Resolutions are legally binding, they are subject to state laws.  It is always best to draft one with the help of an attorney in order to ensure legal compliance.

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