What is a board resolution? You can also call it a corporate resolution. It can be defined as a formal document identifying the specific roles of a company's corporate officers or board of directors and their decisions on important matters concerning the company. The board of directors usually concludes their decisions by voting and the outcome of the voting is included in the board resolution document. In a simpler term, a board resolution is a record of specific decisions made by the Board of Directors during a board meeting.
The decisions included in the board resolutions must be stated in clear terms since they are legally binding. In the course of this informative write-up, we will further expand on what is board resolution and also provide helpful tips for documenting board resolutions to ensure nothing is called into question later.
When Is Board Resolution Required?
Aside from learning what a board resolution is, you also need to understand the instances where a board resolution is required. You can check below for some key instances where a board resolution is usually needed:
1. For major financial decisions
Board resolutions must be passed on actions with large financial consequences. This includes:
- Approving large expenditures or investments
- Authorizing loans or credit facilities
- Approving budgets for major projects or initiatives
2. Changes in governance or structure
The cases of modification to the company's governance structure must be covered with a board resolution. This encompasses:
- Adding or removing directors or officers.
- Altering the location of the Company's registered office
- Alteration of the Company's bylaws or articles of incorporation.
3. Corporate Transactions
Resolutions are necessary for documenting corporate transactions, such as:
- Mergers and acquisitions.
- Sale or purchase of major assets.
- Issuance of new shares or share capital changes.
4. Compliance and regulatory matters
In the sphere of compliance, board resolutions must be done to:
- Approve policy and procedures for compliance.
- Record actions regarding audits or regulatory inquiries.
- Approve any filings with regulatory authorities.
Types of Board Resolution
Aside from learning about what is board resolution, this write-up will also show you the various types of board resolutions.
Type 1: Ordinary Resolution
An ordinary resolution is utilized for routine matters and usually requires a simple majority to pass. This means that over 50% of the votes cast must be in favor of the resolution. Ordinary resolutions are usually used for decisions such as:
- The appointment or removal of directors.
- Approval of financial statements.
- Declaration of dividends.
- Authorization of regular business.
Type 2: Special Resolution
A special resolution concerns major decisions that need a higher threshold for approval, typically receiving at least 75% of the votes cast. Usually, critical changes within the company require special resolutions, such as:
- Alteration of the company's articles of association.
- Change of the name of the company.
- Approval for merger or acquisition.
- Alteration in share capital.
Type 3: Written Resolution
A written resolution might either be an ordinary one or a special one, depending on the nature of the decision. The ability to vote in writing, rather than at a meeting, enables directors to take advantage of this type of resolution for urgent matters where the convening of a meeting is not reasonably practicable. Written resolutions facilitate decision-making and can be executed with speed, particularly where directors are unavailable to meet personally.
Type 4: Unanimous Resolution
Less frequently, unanimous resolutions require that all board members vote in favor of a proposal for it to pass. This kind of resolution is usually reserved for those critical decisions where full consensus is required, such as:
- Deciding on the dissolution of the company.
- Approval of major strategic changes.
Steps for Creating Board Resolutions
The steps below will guide you on how to create legal and binding board resolutions:
- Provide the resolution number and date at the top: you can put the number on the board resolution as you see fit especially if this is the first resolution. You can start the first resolution with a number like "0001" and any future resolution will follow in that order.
- Title the resolution depending on the decision: Consider the decision for the resolution and use that to provide a title for it. If the board resolution is focused on appointing an internal auditor, for example, you can give it a title like "Resolution for the Appointment of an Internal Auditor"
- Maintain formality in language use: The resolution must be written in formal language since it is a formal document. For instance, you should start each paragraph with “whereas”. You should also refer to the responsibility of the board in the first sentence. For instance, you can start a paragraph with a sentence like this: “WHEREAS, the Board recognizes the importance of maintaining effective internal controls and ensuring compliance with applicable laws…”
- Each paragraph should discuss a single critical point: Make sure each paragraph of the board resolution discusses a single critical point as this enables easier reading and understanding. You should also avoid repetition, being careful not to discuss a single point more than once.
- Conclude beautifully: After stating your critical points with each paragraph of the board resolution, you should not forget to include a concluding paragraph. The last statement of the conclusion should be structured to wrap up the entire resolution, making up the final resolution of the board. The final resolution is the action already taken or to be taken by the board on the issue being discussed. A good example of a concluding statement or final resolution is: “This resolution shall be documented in the minutes of the meeting and shall take effect immediately”
- Provide the names of the board directors: As a part of the conclusion, you should list out the names of every director who voted on that resolution and this should be provided at the bottom of the document. The list should contain the names of those who voted for or against the resolution. You should also make available adequate space opposite each name where each of the directors listed can indicate whether they approve or disapprove of the resolution, depending on how each of them voted. Approving the resolution is subject to the voting pattern, meaning that it can only be approved if the number of those who approve the resolution is higher than those who disapprove of it.
- Make space for the president’s signature: As a part of the conclusion, there should be a space under the resolution document where the president can sign. The signature signals the completion of the board's resolution, the absence of which nullifies the document. The president, while signing the document, should also include the date. If you wish, you can also provide space for each board officer to sign, but this is not compulsory.
- Report to the Audit Committee directly.
FAQs
Q: What are the core things that must be in a legally binding board resolution?
A: A legally binding board resolution must include the following key elements:
- Title: The document should be titled as a board resolution.
- Date: It should have a date on which the resolution was proposed.
- Resolution Number: Give it an identification number for filing purposes.
- Preamble: Give the background and reasons behind the resolution.
Q: What should be done during a board meeting in order for a resolution to be considered valid?
A: For a board resolution to be valid, the meeting has to be properly convened by the company bylaws, and all members must have been given notice. There has to be a quorum present at this meeting; the resolutions passed must also be noted in the meeting minutes. Resolutions should also be certified and signed by an appointed chairperson upon approval.
Q: Why is it important that board resolutions be documented in the minutes of a meeting?
A: The minutes of meetings for board resolutions are thus very important in providing a formal record of the decisions arrived at by the board. It acts as legal evidence of compliance with corporate governance requirements and also protects against disputes or challenges over the decisions taken. It will further ensure that there is transparency and accountability within an organization.
Q: What course of action should be adopted after the board resolution is passed?
A: After the resolution, the following actions need to be followed:
- Record the resolution in the main meeting minutes.
- Take signatures from all board members concerned to sign and make the resolution.
- Authorized persons or committees execute the action in the resolution.
Conclusion
In addition to understanding what a board resolution is, you’ve learned several important aspects of crafting one effectively. A well-written board resolution ensures clarity and reflects professionalism, making it impactful and actionable. By applying the tips shared in this guide, you can create a resolution that aligns with your goals and fulfills its purpose. Remember, attention to detail and proper structure are crucial for its success. Use this knowledge to draft resolutions that make a lasting impression.
