When Does a Company Need a Board Resolution?

A board resolution is the written record that the directors of a corporation (or the managers or members of an LLC) approved a specific action. You need one whenever the decision belongs to the board rather than to an officer acting alone, and the answer to which decisions those are comes from three sources: the state corporation or LLC statute, the company’s bylaws or operating agreement, and the expectations of outsiders such as banks and buyers who will ask to see it. The governance and internal policies practice at Capitol Law Partners spends a surprising amount of time reconstructing approvals that should have been documented at the time, so the practical rule is simple: when in doubt, pass the resolution.

Decisions that almost always require board approval

Some actions are reserved to the board by statute or by nearly every set of bylaws. The usual list:

• Issuing stock, options, or membership interests, and approving any equity incentive plan.
• Borrowing money, guaranteeing debt, or granting a security interest in company assets.
• Appointing and removing officers, and setting executive compensation.
• Entering into a merger, acquisition, or sale of the company or substantially all of its assets. These also need an owner vote, as explained below.
• Amending the bylaws, where the board has that power, and recommending amendments to the articles.
• Approving related-party transactions, meaning any deal between the company and a director, officer, or significant owner.
• Declaring dividends or distributions.
• Opening bank accounts and designating authorized signers. Banks require a resolution for this regardless of what the bylaws say.
• Approving annual budgets, major leases, and contracts above a dollar threshold set in a delegation of authority policy.
• Adopting or materially changing company policies, such as a conflict of interest policy.

For an LLC, the operating agreement may put some of these with the managers and others with the members. The document controls; if it is silent, the state LLC act supplies defaults that often require member consent for anything outside the ordinary course of business.

Decisions that also need an owner vote

A board resolution alone is not enough for the biggest decisions. Mergers, a sale of all or substantially all assets, dissolution, conversion to another entity type, and amendments to the articles of incorporation generally require shareholder approval under state corporation statutes, in addition to the board’s approval. The threshold varies: a majority of outstanding shares in many states, more if the articles or bylaws say so, and often a separate class vote if preferred stock is outstanding.

In a closely held company the same people may sit on the board and own the shares, which tempts them to skip the second vote. Do not. A buyer’s counsel will ask for both the board resolution and the shareholder consent, and a transaction approved by the wrong body can be challenged later by a minority owner or a creditor. Our post on the steps to sell a business notes that authority documents are among the first items on any closing checklist.

Meeting or written consent

A resolution can be adopted at a meeting or by written consent without a meeting. At a meeting, notice must be given as the bylaws require, a quorum must be present, and the resolution passes with the vote the bylaws specify, usually a majority of the directors present. The minutes record the discussion and the vote.

Written consent is faster and is the norm for routine approvals in small companies. Most state corporation statutes, including those in Virginia, DC, and New York, allow the board to act by unanimous written consent unless the governing documents restrict it; every director must sign, and one abstention or omission means the action was not validly taken. Shareholder written consents follow different rules and in some states may be adopted by less than all holders if the articles permit, with notice to the non-signing holders. Electronic signatures and email consents are generally acceptable if the bylaws permit them, which is one more reason to keep the bylaws current, as explained in our post on updating your bylaws or operating agreement.

What the resolution should say

A resolution has a predictable structure. Recitals describe the background and the reason for the action. Operative clauses state what is approved, in specific terms: the name of the counterparty, the amount, the key terms, and any limits. A general authorization clause lets named officers sign the documents and take further steps needed to carry out the approved action. The document is dated, signed, and filed in the minute book.

Specificity matters. A resolution approving a named loan from a named bank in a stated principal amount on the terms presented to the board protects the officers who sign and tells a future reader what was actually approved. A resolution approving any financing the CEO deems appropriate is a delegation, not an approval, and it may exceed what the bylaws allow the board to delegate.

When the decision involves a conflicted director, the resolution should recite that the conflict was disclosed, that the interested director did not vote, and that the disinterested directors approved the transaction after review. Our post on what a conflict of interest policy should include explains why that record protects the transaction from later challenge.

Why the paper trail matters later

Resolutions are evidence. They prove the company acted through its proper bodies, which supports the separation between the company and its owners that limits personal liability. They show lenders and investors that the company is run with discipline. And they answer the question every buyer asks in diligence: was this contract, this issuance, this option grant actually authorized? A company that keeps its resolutions in order, along with the other records described in our post on corporate records a small company must keep, closes transactions faster and defends disputes more cheaply.

Companies entering a merger, acquisition, or financing often discover the gaps only when a counterparty asks. Ratifying resolutions can cure many past omissions, but prevention is cheaper than cure.

If you are unsure whether a decision needs board or owner approval, or you need to document past actions properly, a consultation with Capitol Law Partners can sort it out. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

Need help with this topic? See our governance and internal policies page or schedule a consultation.