ESTABLISHING ACCOUNTABILITY WITH ORGANIZATIONAL RESOLUTIONS

When you create a corporation to operate your business, remember that it is a separate legal entity under the law. You own it and receive the benefits from its successful operation, but it is accountable and liable for its actions, not you. Your position in the corporation as a director or officer carries fiduciary responsibilities, for which you are personally liable for failure to reasonably perform, but the actions of the corporation are the responsibility of the organization itself.

The process to document and prove responsibility for those actions is recorded with organizational resolutions — or corporate resolutions, as they are more commonly known. An organizational resolution is a formal, legally binding document adopted and used by a corporation’s board of directors to officially authorize specific company actions such as:

• Authorizing the beginning of legal business operations
• Appointing officers
• Opening bank accounts
• Authorizing the issuance of shares to the stockholders
• Hiring directors
• Adopting the bylaws
• Signing major contracts
• Protecting the business’s assets and limited liability status
• Approving the purchase of real estate, loans, or business mergers

Well-written organizational resolutions establish the foundation for legal compliance and good corporate governance.

While LLCs aren’t legally required by states to create corporate resolutions, they often draft similar documents, usually called LLC resolutions or member resolutions. Instead of board meetings, LLC members use these documents to formally record major decisions, like buying property, and authorizing specific actions, like opening a bank account or taking out a business loan.

Structure of a Resolution

The accepted form of any organizational resolution should include these key elements:

• Title & Heading: Clearly labeled as an organizational resolution on company letterhead
• “Whereas” Clauses: Statements explaining the background, necessity, and purpose of the resolution
• “Resolved” Clauses: The exact actions, permissions, or authorities being granted by the board
• Authorized Signatures: Signatures of authorized individuals (such as the corporate secretary) and the date to legally bind the document

Common Organizational Resolutions to Authorize These Functions

• Designate a registered agent to receive service of process
• Adopt the corporate bylaws, which govern the internal management of the corporation
• Authorize the hiring and appointment of directors
• Name the initial corporate officers (e.g., President, Treasurer, Secretary)
• Adopt a corporate seal
• Authorize the issuance of initial shares to stockholders and adopt a form of stock certificate
• Select the corporate fiscal year
• Establish the principal executive office
• Secure a federal employer identification number (EIN) and state tax IDs
• Select times for board of directors meetings
• Select the time for the annual meeting of shareholders
• Authorize the opening of corporate bank accounts and designate authorized signers for checks and funds
• Authorize the payment of incorporation expenses
• Ensure securities law compliance
• Direct the maintenance of the corporate minute book, which will contain the certificate of incorporation, bylaws, and all meeting minutes and resolutions

Protect Yourself and Your Personal Assets with Complete Documentation

Organizational resolutions document that the board of directors is upholding its fiduciary duty to act responsibly and in the best interest of the corporation and its shareholders. They demonstrate that the company is properly organized and observes all necessary corporate formalities, and they create an audit trail of who made what decision and when — which is essential for audits, tax purposes, and future legal or financial due diligence.

The corporate lawyers at Corporate Securities Legal LLP can provide continuing compliance with organizational resolutions that protect you and your company.