A corporate resolution is a legal document created by the board of directors or shareholders of a company. It records binding decisions and actions and serves as a framework for how a company operates in various situations.
Purpose of a corporate resolution
A corporate resolution serves the following purposes:
Formalising decisions
It officially records the discussions and decisions made by an organisation’s board or shareholders. It ensures clarity on the outcomes of votes and compliance with governance protocols.
Providing legal proof
Corporate resolutions serve as historical records of the actions, decisions and authorised activities carried out by an organisation. The document can be a valuable resource for future reference, audits and legal proceedings.
Ensuring accountability and transparency
A corporate resolution records the details of all decisions, including rationale, context and the individuals involved in approving them. It serves as a paper trail, keeping the board of directors accountable and ensuring that they uphold their fiduciary duty.
Examples of actions that require a corporate resolution
Here are common scenarios that necessitate the use of corporate resolutions:
Organisational restructuring, such as mergers, acquisitions and joint ventures
Purchasing real estate property
Changes to the board, such as voting in new directors or removing them
Appointing or removing key company executives, such as the CEO and CFO
Approving director remuneration, executive salary and bonuses as well as changes in employee benefits and retirement plans
Issuing new shares or increasing the company’s share capital
Applying for and filing a patent on behalf of the organisation
Taking out loans, securing financing or incurring debt on behalf of the company
Types of corporate resolutions
Board resolutions
Board resolutions are formal decisions and actions made by the board of directors. This type of resolution typically does not require shareholder approval. It is passed by a simple majority unless the company byelaws specify the requirement for a higher majority or unanimous approval.
Special resolutions
Special resolutions are reserved for significant company developments, such as changes to its constitution, acquisition of major assets or entering into extraordinary contracts. These resolutions often need a higher percentage of approval.
Ordinary resolutions
Ordinary corporate resolutions are created for routine business activities and decisions. These include annual accounts approval or allocation of project funds. A simple majority vote is needed for an ordinary resolution to pass.
Written resolutions
Written resolutions are used when the board is unable to convene in person. This is often during special circumstances, such as the COVID-19 pandemic, or when the directors or shareholders are geographically dispersed.
Key components
Title and purpose: The title of the resolution and its purpose e.g., “Resolution to approve annual financial statements for the fiscal year ending December 31, 2024”.
Date and location: The date and location of the meeting where the resolution was created.
Details of the decision or action: Particulars of the decision made, including the specific actions, discussions, scope, deadlines, roles and financial implications.
Names of the individuals involved: The names of the board members or shareholders who voted on the resolution and others present at the meeting, including guests or advisors.
Voting result: The sum of votes for and against, abstentions and how each member voted.
Signatures: The signatures of authorised individuals, such as the chairperson, secretary and treasurer, to make the resolution legally binding
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