LLC Corporate Resolution: Everything You Need to Know
An LLC corporate resolution is a record of a decision made through a vote by the board of directors or LLC members. 4 min read
2. Managing an LLC
3. Creating an LLC Corporate Resolution
4. Keeping Records
5. LLC Member Resolutions
6. LLC Transaction Requirements
Updated October 30, 2020:
An LLC corporate resolution is a record of a decision made through a vote by the board of directors or LLC members. Limited liability companies (LLCs) enjoy specific tax and legal benefits modeled after a corporate structure, although they are not corporations. They also boast management flexibility that corporations do not have.
Limited Liability Company Structure
LLC owners are called members and can choose to adopt corporate-style formalities, including resolutions to create records of owner decisions. These adoptions are optional, however, as no government regulations mandate them.
LLCs have a major advantage because they enjoy aspects of both a corporation and a partnership. Forming an LLC is more difficult than creating a partnership, but maintaining an LLC is much easier than a corporation. It's important to remember that easier isn't always better, especially when it comes to recording major business decisions. Unlike LLCs, corporations have a more formal structure with legal obligations to document all decisions.
Although LLCs aren't required to hold annual meetings, keep minutes, or document major decisions, it's still a smart idea to have a written resolution regarding these topics.
Managing an LLC
LLCs can be managed either by an owner (member) or a manager. Strict regulations bind corporations to protect public investors and shareholders. However, LLC members can choose how to manage their business, similar to a partnership.
LLC members negotiate an operating agreement and abide by it for operational and decision-making matters. With an LLC, you can choose to implement corporate-style formalities, such as business meetings and minutes. However, you aren't obligated to run your business like a corporation. This type of flexibility is precisely what makes starting an LLC such an attractive choice.
Creating an LLC Corporate Resolution
An LLC corporate resolution must consist of decisions set in writing, including the percentage of members required to vote for a resolution to pass. Once committed to writing, all managing members or the chairperson of the board should sign the resolutions.
In a corporate structure, the board's secretary typically prepares the resolution based on the minutes from the meeting in which the resolution was voted upon and passed. LLCs can also choose to follow this format. The key is to state the resolution's details, its effective term, and conclude with a signature line.
No matter your type of business, keep signed resolutions with the company records. Having resolutions on file indefinitely gives you a proof of formal decisions made in case disputes arise. If the dispute ends up in court, you can prove that business actions were authorized via a vote. You may also want to provide resolution copies to members and staff when they need to complete tasks requiring authorization, such as conducting financial transactions.
Most states require LLCs to keep records at the principal place of business. These records should include the company's tax files and articles of organization. Certain states, including Florida and Washington, require LLCs to maintain a written statement specifying each member's contribution to the business and whether the said member has the right to receive capital distributions. An LLC resolution meets such recordkeeping requirements.
LLC Member Resolutions
There are many circumstances in which a member may need a resolution:
- If a member makes a decision based on the LLC's internal organization.
- If the bank requests a copy of the resolution for conducting financial business.
- If a member needs to sign a loan on behalf of the business.
- If the manager or owners of the LLC take action.
Unlike LLCs, corporations are required to make resolutions. Therefore, they are used to preparing them when shareholders or the board of directors make decisions. Although an LLC is not required to make resolutions, there are many reasons for getting in the habit of maintaining resolutions.
LLC Transaction Requirements
State laws allow LLCs to be member-managed or manager-managed. Members may choose to be managers themselves, or they may hire a third-party manager to perform daily operations. Depending on how your LLC is managed, outside parties such as banks may not know who is authorized to act on the company's behalf.
In these situations, an LLC resolution is a helpful tool to indicate who is in charge of signing contracts and conducting other business. Even if you don't have a resolution, some outside parties provide a form of resolution you can fill out.
For instance, entering into a long-term business lease is a major decision that comes with financial risk. As such, it needs to be well documented in the form of a resolution to show that members have voted on and approved the matter.
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