Corporate America makes resolutions each year, much like people's New Year resolutions. Boards of Directors make proposals or set goals for the betterment of the corporation, and then vote on those proposals in a written, legally binding document called a "corporate resolution."
A corporate resolution—similar to a company's bylaws—serves to create a record that answers any questions raised later concerning why specific proposals were approved or goals set.
Read on to learn what a corporate resolution is, how it's used, and why it's important.
What Is a Corporate Resolution?
A corporate resolution is essentially an approved proposal by a corporation's board of directors to take some action on behalf of the company. If the proposal approved, it is then reduced to writing and signed by the board members.
Once the corporate resolution is signed, the corporation's secretary files it in the corporate records book. So, if the board agrees to get in shape, cut the fat, or stop eating chocolate cake, there is a written, binding record of that decision that the corporation and its board must follow.
In general, however, a corporate resolution includes:
- The business matter being discussed by the board
- The purpose of the business matter within the title of the document (for example, "Resolution to Purchase Stock")
- A "whereas" statement explaining intentions of the board in proposing the resolution (for example, "Whereas, it is the intention of this board to purchase XYZ stock")
- A provision indicating that the corporate resolution has the consent of the board members
- A "therefore" or "resolved" statement that specifies the details of the action to be undertaken
- The signatures of the officers or members of the board of directors designated to sign the corporate resolution
Including all of these points in each corporate resolution creates a clear record of the action taken, the underlying reason for the action and, most importantly, the specific details of the action taken. What's more, the formality of the document will immediately signal to all involved that the resolution is bona fide, and not just another hopeful New Year's resolution.
How Is a Corporate Resolution Used?
Internally, a corporate resolution is a formal document that confirms and records the official actions and decisions made by the board of directors. For instance, when a company incorporates, the board of directors frequently introduces a corporate resolution in order to nominate and approve new board members and officers (including a CEO and president), adopt bylaws, and set up a corporate bank account. After the corporation is up and running, corporate resolutions are normally used (if not required) whenever the board elects to take action that might include:
- Establishing a corporate headquarter
- Entering into a contract with a third-party
- Purchasing or selling company-owned property
- Leasing equipment or facilities
- Purchasing a patent
- Adopting a new trademark, or develop a corporate logo
- Securing a loan
Although it's true that all significant actions and decisions of a board of directors must be adopted in the form of a written resolution, not all decisions merit such formality. For example, a corporate resolution is not typically required in order for a corporation to hire or terminate an employee, to pay outstanding invoices, or to accept new business.
Externally, while the corporate resolutions don't need to be submitted to any governmental agency, they must be available if the corporation is audited by federal or state regulators, by a licensing board or other agency, or by the business department in the state where the corporation is located. In these situations, the corporate resolutions serve to create documentation to establish that the board is acting according to its fiduciary responsibilities.
Why Is a Corporate Resolution Important?
Although no one really knows or cares if we actually accomplish our New Year's resolution, when you are a large corporation with hordes of employees, stockholders and owners depending upon your ability to map out a sound corporate strategy, the board is required to be accountable.
For this reason, drafting and adopting a corporate resolution every time the board makes an important decision is essential.