Board Resolution
A board resolution is a formal document that records the decisions made by a company’s board of directors during meetings. These resolutions are legally binding and play a crucial role in protecting board members from potential legal challenges. They serve as an official record of the board’s decisions and provide clarity on the actions taken. Crafting a well-structured and clear board resolution is essential for good governance, as it ensures transparency, accountability, and future reference.
- Be Clear and Concise
- Use Templates
- Stay Focused on Purpose
- Legal Compliance
- Record Keeping
Overview Of Board Resolution
A board resolution is a formal document that records the decisions made by a company’s board of directors during meetings. These resolutions are legally binding and play a crucial role in protecting board members from potential legal challenges. They serve as an official record of the board’s decisions and provide clarity on the actions taken. Crafting a well-structured and clear board resolution is essential for good governance, as it ensures transparency, accountability, and future reference.
This guide will walk you through:
- What a board resolution is
- The situations that require a board resolution
- The process for writing a board resolution
- How to pass a resolution at a board meeting
What is a Board Resolution?
A board resolution (also called a corporate or directors’ resolution) is an official statement made by a company’s board of directors regarding specific business actions or decisions. These resolutions are critical for ensuring that the board’s decisions are made in a structured manner, and they hold legal weight if ever questioned by stakeholders or the court.
Board resolutions are used for various strategic and operational decisions, including corporate actions, governance matters, and financial resolutions. As a key element of corporate governance, these resolutions need to be clear, concise, and legally sound.
Situations Requiring a Board Resolution
Board resolutions can be used for a wide range of business decisions. Some common situations in which a board resolution is required include:
Appointment of new board members or officers
Issuing new shares or approving dividend distribution
Approval of mergers and acquisitions
Real estate transactions, such as purchasing or selling property
Extending loans or credit to another business
Filing intellectual property (IP) rights, such as patents or trademarks
Hiring new employees or executives
Allocating funds to specific projects or departments
Awarding honours or special recognitions to employees or members
In essence, whenever a significant action or decision requires formal approval from the board, a resolution is necessary. Having these decisions documented ensures legal validity and protects the organization and its directors.
How to Write a Board Resolution
Writing a board resolution may seem complicated, but it follows a systematic approach. Here are the 7 key steps for drafting a proper board resolution:
1. Add the Date and Resolution Number
Start by placing the resolution date at the top of the document. This ensures there is a clear record of when the decision was made. Additionally, number the resolutions consecutively to maintain an organized record.
2. Give the Resolution a Clear Title
The title should clearly reflect the purpose of the resolution. For instance, “Resolution to Approve the Purchase of Real Estate at XYZ Location” or “Resolution for the Appointment of John Doe as Chief Financial Officer.”
3. Use Formal Language and Structure
A resolution typically begins with the word “Whereas” to introduce the background of the decision. For example: “Whereas, it is the responsibility of the Board of Directors to approve the allocation of funds for the upcoming marketing campaign…”
Follow this with relevant context or rationale behind the decision, being sure to make each point in a separate paragraph for clarity.
4. Outline the Core Decisions
Each paragraph should clearly outline the decision taken, any specifics regarding the action, and the timeline. This section should focus on the “why” and “how” of the decision.
5. State the Final Resolution
End the resolution with the “Now, therefore be it resolved…” section, which states the specific action being taken. This is the most important part of the resolution and needs to be explicit.
Example:
“Now, therefore, be it resolved that the Board of Directors hereby approves the purchase of the property at XYZ location for the amount of $2 million.”
6. List the Voting Results
After the resolution text, list the names of all directors who participated in the vote. Indicate their vote (yes/no/abstain) next to their name. A resolution is passed when the majority of directors vote “yes.”
7. Provide Space for Signatures
A board resolution is not complete without the signatures of the board president (and other relevant officers). Include a space for the president’s signature, as well as the date the resolution was signed.
How to Pass a Board Resolution at a Meeting
Once a board resolution is written, the next step is to pass it during a board meeting. Here’s how to proceed with passing a resolution:
- Read the Resolution: The board chair or another designated director reads the resolution aloud during the meeting.
- Call for a Motion: The chair requests a motion to adopt the resolution. One director makes the motion, and another director seconds it.
- Discussion (Optional): The chair asks if there are any further discussions or amendments. Directors may voice their opinions on the resolution.
- Voting: The chair calls for a vote. Directors typically vote verbally or by raising hands. Votes should be recorded as “yes,” “no,” or “abstention.”
- Announce the Outcome: Once the vote is complete, the chair announces whether the resolution passes or fails. The decision is recorded in the minutes of the meeting.
Considerations for Writing Effective Board Resolutions
When drafting board resolutions, here are some best practices to follow:
- Be Clear and Concise: Avoid ambiguity in your language. Be direct and to the point.
- Use Templates: Consider using resolution templates that are suited for your organization’s needs. Templates provide a structure, but should be flexible enough to serve the unique purposes of the resolution.
- Stay Focused on Purpose: Always remember the purpose of the resolution and avoid including unnecessary information.
- Legal Compliance: Ensure that the resolution complies with all relevant laws and regulations. Legal advice may be needed for complex decisions, like mergers or acquisitions.
Record Keeping: Store resolutions in an easily accessible location, such as a board management system, for future reference.
Conclusion
Board resolutions are a fundamental part of corporate governance, ensuring that a company’s directors’ decisions are formally documented and legally enforceable. Whether you’re approving a new hire, facilitating a merger, or making financial decisions, a well-crafted board resolution promotes transparency, accountability, and stability in your organization. By following the outlined best practices and steps, you can ensure your board resolutions are effective and legally sound.
FAQ'S
Yes, it is legally acceptable for boards to sign resolutions digitally, which is particularly convenient for remote teams or boards with members in multiple locations.
Board resolutions should be stored alongside other essential corporate documents like articles of incorporation and bylaws. Having a backup copy in a secure cloud storage system is a good practice to prevent loss of original records.
Board resolutions are required to formalize the decisions made by the board. They provide a clear, legally binding record of the actions taken, which can be referenced in case of disputes or audits.