Resolution Ratifying Prior Acts: Everything You Need to Know
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.3 min read
2. How to Pass a Resolution
3. When to Create a Resolution
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.
- Board of directors.
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.
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.
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