Key Takeaways

  • A ratifying resolution allows company leadership or shareholders to formally approve prior actions taken by officers or directors.
  • These resolutions are often necessary for legal clarity, correcting procedural oversights, or providing assurance to third parties (e.g., banks, investors).
  • A corporate resolution documents formal decisions by a company’s governing body and may be required for significant actions like lawsuits, borrowing, or management appointments.
  • Ratifying resolutions can be passed during a valid meeting or by written consent, following internal governance rules.
  • Common scenarios include ratifying contract approvals, officer actions, or decisions made without prior authorization.
  • Proper documentation and clear language in the resolution are critical to ensure enforceability and reduce legal risk.

A resolution ratifying prior acts lets decision-makers in a company authorize any decisions or acts made previously by the people who report to them. As an example, if a board of directors decides to take certain acts related to the company, the shareholders can ratify these acts after considering them carefully.

What Is a Corporate Resolution?

To better understand how ratifying prior acts works, you should first understand what a corporate resolution is. A corporate resolution is used by both nonprofit and for-profit corporations and can be made by the:

  • Board of managers.
  • Members.
  • Board of directors.
  • Shareholders.

Limited liability companies (LLCs) can also use resolutions to formally document important business decisions, but this is not required. In particular, an LLC might choose to make resolutions if it wants to get financing from a bank or show its investors transparency in its operations.

How to Pass a Resolution

While it varies slightly depending on your organization's specific rules, there are a few main ways to pass a resolution. These include:

  • Passing the resolution at a meeting where a quorum has been met. A quorum is the minimum number of members required for the meeting to be valid. The minimum number of decision-makers must also be present to adopt the resolution.
  • Passing the resolution with necessary written consent. This could be used in place of a meeting if you can get enough affirmative votes from decision-makers.
  • Passing the resolution with unanimous written consent. This could be used in place of a meeting because everyone agrees to the resolution.

When you pass a resolution, you'll need to record the date that the decision-makers adopted the resolution. Obviously, if the resolution was approved at a meeting, the adoption date is the day of the meeting (unless another date was specified at the meeting).

For resolutions passed through written consent, you might not have an exact date, as different decision-makers can sign and return their consent at different times. You should anticipate this time lapse and set an adoption date for the resolution that's far enough in the future to give you time to get the required signatures.

Legal Considerations for Ratifying Resolutions

Before adopting a ratifying resolution, organizations should evaluate the legal implications, including:

  • Compliance with corporate bylaws and operating agreements, which may impose procedural or majority vote requirements.
  • Potential conflicts of interest, especially if the acts being ratified benefited board members or shareholders personally.
  • Impact on third-party rights, such as existing creditors, investors, or contract parties.
  • Securities regulations, if the company is public or issuing stock in connection with the ratified act.
  • Jurisdiction-specific corporate law, which may impose limits on ratifying unauthorized or illegal acts.

Failing to address these considerations could render the resolution ineffective or subject to legal challenge.

When to Create a Resolution

You can create a resolution in a number of different instances. For example, you can use a resolution to make changes to your company's bylaws, operating agreement, charters, or shareholders' agreement. This type of resolution often requires a high standard of approval by decision-makers, so it might not be easy to accomplish. To improve your chances of success, choose the specific area you want to change in the document, and clearly highlight the lines you wish to eliminate, replace, or change.

Other instances when you might want to create a resolution include:

  • Your company's annual budget approval. The company's decision-makers must review the previous year's financial statements before approving the new estimated budget for the next year. In this type of resolution, you'll need to include the start and end date of your company's fiscal year.
  • Borrowing capital from a bank. In many cases, the bank needs proof your company has authorized the loan. This can come in the form of a resolution from your decision-makers that specifies the dollar and collateral limits your company has consented to.
  • Creating or defending your company against a new lawsuit. The resolution can call out the party you wish to pursue legal action against or act as a defense if someone has accused you. Decision-makers should include some information on the nature of the dispute as well as the entities involved. You can also use this form of resolution to give the chief executive officer or president the means to settle the dispute on their own.
  • Distributing dividends to your shareholders. In this kind of resolution, you'll need to specify the dollar amount per share, the type of distribution, and which classes of shareholders this resolution will affect. You will also want to include a record date, which acts as the cut-off point for determining eligibility for dividend distribution.
  • Appointing managers, directors, or officers to a new position within your organization. Most resolutions dictate the new appointment will be valid as soon as the resolution is signed and until a successor is elected, they are fired by the company, or they resign their position.

When to Use a Ratifying Resolution

A ratifying resolution is especially useful when prior corporate actions need to be formally approved after the fact. These resolutions are commonly used to affirm:

  • Actions taken without prior board or shareholder approval, such as entering into a lease or executing a contract.
  • Decisions made in good faith by officers or managers when formal authority was not properly documented.
  • Legal or regulatory filings submitted without full board consent.
  • Corporate restructurings, including mergers or asset transfers, that were initiated before formal board ratification.

Ratifying resolutions are also frequently employed to:

  • Remedy corporate recordkeeping gaps.
  • Strengthen a company’s position during due diligence for investments or acquisitions.
  • Satisfy third-party legal requirements (such as from banks or auditors).

These resolutions typically include language stating that all past acts, decisions, or documents referenced are "hereby ratified, approved, and confirmed" as if they were pre-authorized, lending them retroactive legitimacy.

What to Include in a Ratifying Resolution

When drafting a ratifying resolution, it is important to include specific and unambiguous language. A well-crafted ratifying resolution should include:

  • The title of the resolution, identifying it as a ratification.
  • A description of the action(s) being ratified, including dates, names of individuals involved, and nature of the act.
  • An affirmation clause, stating the governing body’s intent to validate and approve the prior acts as though originally authorized.
  • Authorization language, allowing designated officers (e.g., CEO or Secretary) to take any necessary further steps to give effect to the resolution.
  • Signatures or vote documentation, proving approval by the requisite majority (board or shareholders, depending on the bylaws or operating agreement).

In some cases, legal counsel may recommend attaching exhibits—such as executed contracts or financial terms—to ensure clarity and alignment with corporate records.

Frequently Asked Questions

  1. What is the purpose of a ratifying resolution?
    A ratifying resolution formally approves actions taken previously by corporate officers or directors without prior authorization, ensuring legal validity and internal compliance.
  2. Can shareholders ratify board actions?
    Yes, shareholders may ratify board actions, especially if the board exceeded its authority or the action requires shareholder approval under corporate bylaws.
  3. Are ratifying resolutions legally binding?
    Yes, when properly adopted in accordance with corporate governance rules, ratifying resolutions are legally binding and serve as formal approval of past acts.
  4. What happens if a company doesn't ratify prior acts?
    Failure to ratify significant prior acts can lead to legal uncertainty, disputes over authority, and difficulties in regulatory filings or third-party transactions.
  5. Do LLCs need to pass ratifying resolutions?
    LLCs are generally more flexible, but passing a ratifying resolution can still provide clarity, especially when documenting significant decisions for lenders or investors.

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