What Is a Corporate Resolution?
A 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 as to 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 is a written document created by the board of directors of a company detailing a binding corporate action.
- A corporate resolution is the legal document that provides the rules and framework as to how the board can act under various circumstances.
- Corporate resolutions provide a paper trail of the decisions made by the board and the executive management team.
- Decisions made via a corporate resolution include changes to a dividend policy, executive compensation, and the issuance of debt.
How Corporate Resolutions Work
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 and 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 with 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.
Types of Corporate Resolutions
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:
- Purchase of real estate
- Applying for loans or credit
- The issuance of debt to raise capital or money, such as corporate bonds
- Vote in new board members
- Changes in the executive management team, such as firing or appointing a new chief executive officer (CEO)
- Executive compensation including salary and bonuses paid to executives
- Issuance new equity shares for the corporation
- File for a new patent
- Mergers and acquisitions, which involve combining two companies
- Joint ventures, which are arrangements or strategic partnerships with other corporations
- Retirement plan changes such as the issuance of stock options to employees
- Changes in the health benefits of the employees
- Leasing equipment or the purchase of major assets, such as a factory
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.
Real-World Example of a Corporate Resolution
In December 2017, the National Company Law Tribunal (NCLT) extended the time, during which the firm Electrosteel Steels Limited was able to engage in its corporate insolvency resolution process. The extension was an additional 90 days, beginning January 17, 2018. The Kolkata-based Electrosteel Steels Limited was burdened with Rs 10,274 crore in debt; it owed this total to an SBI-led consortium of banks.
Facing insolvency proceedings, ESL was admitted to the insolvency process. The admission recommendation originated at the Committee of Creditors (CoC) committee meeting on December 6, 2017. NCLT executive members noted that meeting minutes underscored the CoC's approving the resolution by 99.82%.