Key Takeaways

  • An LLC corporate resolution is a written document used to formally record key decisions made by the members or managers of an LLC.
  • Although not required by law in most states, resolutions serve as critical internal records and can help avoid legal and operational disputes.
  • Common uses include authorizing financial transactions, approving contracts, admitting or removing members, and altering profit distribution.
  • Resolutions are particularly important for multi-member LLCs and in dealings with external parties like banks and courts.
  • Even single-member LLCs benefit from using corporate resolutions as a formal record of business decisions.

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.

When an LLC Corporate Resolution Is Required

LLC corporate resolutions are commonly used for decisions involving legal, financial, or structural significance. While not legally required in most states, their use is highly recommended for the following situations:

  • Opening a business bank account: Many banks request a resolution that specifies which members or managers have signing authority.
  • Applying for loans or credit: Lenders may require documented authorization to ensure the signer is permitted to bind the company financially.
  • Buying or selling real estate: Resolutions clarify approval for property transactions and prevent future disputes over authorization.
  • Entering into contracts: Particularly for high-value agreements, resolutions document consensus and approval, protecting the LLC in case of disagreements.
  • Admitting or removing members: Formalizing membership changes ensures compliance with the operating agreement and mitigates potential conflicts.
  • Changing the LLC’s tax classification: A resolution may be used to support an IRS Form 8832 election (e.g., electing S-corp status).

Documenting these events can provide valuable protection and clarity, especially when recalling past decisions or proving authorization to third parties.

Keeping Records

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.

Components of a Well-Drafted LLC Resolution

An effective LLC corporate resolution should include the following components:

  1. Title – Clearly label the document as a "LLC Resolution" and specify the subject (e.g., Resolution to Open a Bank Account).
  2. Date – Include the date when the resolution is adopted.
  3. Statement of Authority – Identify the members or managers empowered to act on behalf of the LLC.
  4. Detailed Action Description – Describe the action being authorized (e.g., "authorize Jane Smith to sign a lease on behalf of the LLC").
  5. Voting Details – Note the percentage of votes required and whether the required votes were obtained.
  6. Signature Section – Include lines for signatures of members or managers, affirming the resolution.

Adding these elements ensures clarity and makes the resolution a legally useful record of LLC decision-making.

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.

Best Practices for Drafting and Using Resolutions

To ensure that LLC resolutions are effective and enforceable, follow these best practices:

  • Refer to the Operating Agreement: Confirm if there are specific procedural requirements for adopting resolutions.
  • Use consistent formatting: This enhances professionalism and readability across all business documentation.
  • Store securely: Keep signed copies in a secure and accessible location along with other company records.
  • Distribute as needed: Share copies with relevant third parties (e.g., banks, attorneys, business partners) who require evidence of company authorization.
  • Keep them updated: If roles or responsibilities change, update or revoke prior resolutions as necessary.

Following these practices helps create a strong paper trail and minimizes future legal or administrative hurdles.

Frequently Asked Questions

  1. What is the purpose of an LLC corporate resolution?
    It formalizes key decisions made by an LLC’s members or managers and provides documentation for legal and financial actions.
  2. Do single-member LLCs need resolutions?
    While not mandatory, they can provide proof of decisions and are useful when dealing with banks, courts, or the IRS.
  3. When should an LLC create a resolution?
    Resolutions are ideal for major business activities like taking out loans, entering contracts, or changing ownership structure.
  4. Can a bank require an LLC resolution?
    Yes. Banks often require a resolution authorizing individuals to open accounts or conduct transactions on behalf of the LLC.
  5. Is a resolution required for every LLC decision?
    No. Routine decisions typically don’t need a resolution, but significant or legally binding actions should be documented.

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