James Chen, CMT is an expert trader, investment adviser, and global market strategist.
Updated October 02, 2022A corporate resolution is a written document created by the board of directors of a company detailing a binding corporate action. A board of directors is a group of people that act as a governing body on behalf of the shareholders of a company.
The board helps to set policies, appoint executives, and provide oversight as to the direction of the corporation. A corporate resolution is important because it is the legal document that provides the rules and framework for how the board can act under various circumstances. A corporate resolution is typically found in the board meeting minutes, although its form and structure can vary.
A corporate resolution outlines the decisions and actions made by a company's board of directors. A corporation might use a corporate resolution to establish itself as an independent legal entity, which is separate from the owners.
A corporate resolution helps the corporation to remain independent from its owners by ensuring that the decisions made by the board and the corporate executives do not create a conflict of interest with the owners.
The board of directors of a corporation is responsible for making significant decisions and establishing corporate policies for the management to follow. A board of directors is required of every public company. It is charged with helping a corporation establish broad goals, support executive duties, and ensure the company has adequate, well-managed resources at its disposal. Many critical decisions are recorded in board meeting minutes as corporate resolutions.
Corporate resolutions help to keep the board accountable to various laws and regulations as well as ensure that the board is upholding its fiduciary duty to the shareholders. Corporate resolutions provide a paper trail of the decisions made by the board and the executive management team.
These resolutions can be reviewed later by regulators, the Internal Revenue Service (IRS), shareholders, and corporate officers to ensure that the board and the company's management are adhering to regulations, tax laws, and the bylaws of the corporation.
There are many types of decisions that are made by a corporation's board of directors that are outlined in a corporate resolution, including major financial decisions and ownership changes.
A resolution might outline the officers that are authorized to act (trade, assign, transfer, or hedge securities and other assets) on behalf of the corporation. The resolution would outline who is authorized to open a bank account, withdraw money, and write checks.
This is a common type of resolution, given that many banks, brokerages, and asset managers require this information, along with some title agencies, which help confirm the legal owner of a property.
Any changes to the company's dividend distribution policy to its shareholders must be done via a resolution, including increases or suspensions of the dividend. Dividends are cash or stock payouts to shareholders as a reward for investing in the company.
Other common actions that are likely to need a corporate resolution include the following:
Following a vote, the corporate resolution serves as the official documentation. It does not usually need to be submitted to an oversight body or government body.
Examples of corporate resolutions include the adoption of new bylaws, the approval of changes in the board members, determining what board members have access to certain finances, such as bank accounts, deciding upon mergers and acquisitions, and deciding executive compensation.
Corporate resolutions are needed when important changes are made in a company. The resolution is a document recording the decisions made by the board members regarding decisions and actions a company will take. A corporate resolution is binding.
The board of directors creates a corporate resolution for a company. They are responsible for making binding decisions that affect the company which is recorded in the corporate resolution.