Corporate resolutions are important internal legal documents, providing a framework for company actions. These documents are included in the minute book and are an essential part of corporate governance.
In many situations, corporate resolutions are mandatory. Failing to have corporate resolutions or not executing them properly can hinder transactions, stop a deal or lead to liability. Keep reading to find out more about the types of corporate resolutions, why it is absolutely essential to have them as a part of your corporate records and how technology can help in handling these important tasks.
Types of Corporate Resolutions
In most jurisdictions, including the United States, corporate resolutions refer to key decisions made by the board of directors concerning the most important corporate actions. Other decisions which require voting by shareholders are referred to as shareholder resolutions or annual resolutions.
Meanwhile, in Canada, the term corporate resolutions can include both the directors' resolutions and shareholder resolutions, so that we will outline both of these types of resolutions down below.
The board of directors is authorized to make various types of resolutions on key corporate matters. These can include:
- appointing persons authorized to open bank accounts, withdraw funds and sign checks on behalf of the company,
- approving new board members and officers,
- appointing officers who can transact with securities on behalf of the corporation,
- changing dividend distribution policy, increasing or suspending payment of dividends,
- making changes to the registered corporate address,
- applying for a loan,
- business expansion,
- approving bonuses.
Shareholder resolutions are taken by shareholders at annual meetings and, therefore, often referred to as annual resolutions.
Examples of shareholder resolutions include:
- appointment of an auditor or exemption from an audit,
- approval of annual financial statements,
- election of directors,
- appointment of an accountant.
Companies need to search for applicable regulations in their jurisdictions to determine if they need a board or shareholder resolution for each case.
For example, when Canadian companies in Ontario aim to change the number of directors, they shall be guided by the Business Corporations Act of Ontario, which allows changing the number of directors either by special resolution of shareholders or by directors if the former authorize directors for this action.
How Are Corporate Resolutions Made?
When corporate resolutions are passed during board meetings, they are voted upon by the directors, who show up at a meeting and present a quorum. The quorum can be a simple majority of board members or some specific number of directors defined by the company's by-laws.
Typically, corporate resolutions must include:
- heading, which mentions the name of the legal entity and the board,
- recitals, which include the matter the resolution is referring to,
- the body of the resolution with the required authorizations and actions,
- attestation by the board members, confirming the accuracy of the document.
Sometimes, corporate resolutions are confused with meeting minutes, which are different documents. While corporate resolutions are records of actual decisions for specific matters, meeting minutes include all decisions made during the meeting.
There are different requirements for record keeping of corporate resolutions and board minutes in various jurisdictions, so it is essential to consult your lawyer and comply with applicable regulations.
Consequences of Failure to Pass or Record Corporate Resolutions
Unlike someone may think, corporate resolutions are not just for big corporations. Even smaller legal entities are required to pass corporate resolutions, for example, when applying for a loan. In case the company fails to approve and sign a corporate resolution on borrowing funds, aka a borrowing resolution, they will not be able to proceed with their loan application.
Too often, companies find that they lack properly drafted and signed corporate resolutions in the middle of critical transactions. Such situations can lead to delays, loss of a deal or even personal liability. In particular, the absence of corporate resolution can cause:
- disputes with shareholders,
- loss of tax benefits for dividends,
- inability to proceed with the loan,
- costly delays and inefficiencies in transactional work.
Best Practices in Keeping Corporate Resolutions
Given the consequences of not having approved or executed corporate resolutions, businesses should always keep an eye on documenting all their corporate actions. Companies shall keep a record of all corporate resolutions to ensure accountability and compliance, which can be further facilitated by legal technology.
Besides being a prerequisite for many transactions and business moves, corporate resolutions serve an important role of creating a trail of decisions made by key decision-makers. Keeping an accurate record of corporate resolutions helps to ensure that the board complies with the applicable laws and by-laws in their decisions and allow to demonstrate it to external auditors, regulators and investors.
Leverage Legal Technology
As organizations grow in size and the number of legal entities skyrockets, companies need a reliable system which would enable passing, executing and having all corporate resolutions immediately accessible by legal teams to ensure effective work across the board.
Those organizations who are interested in having their corporate resolutions immediately available at fingertips should consider leveraging legal technology. For example, digitizing the minute book and employing entity management software like Athennian would allow companies to create a single source of truth for all their data, including corporate resolutions.
Contact Athennian for the Best Practices for Corporate Governance and Compliance
Corporate resolutions are important legal documents and are an integral part of a minute book. It is essential to have corporate resolutions properly drafted, executed and kept within the entity management system accessible to the legal team, board and shareholders.
If you are interested in learning more about administering corporate resolutions and improving your corporate governance and compliance with legal technology, please don't hesitate to contact Athennian team for a free customized demo.