Using modern business corporation laws, many smaller corporations have replaced formal meetings with consent resolutions. Let’s explore how consent resolutions work.
A consent resolution is a written corporate resolution that has been signed by a director or shareholder. By signing, the director or shareholder consents to the adoption of the resolution as if the resolution had been formally presented or approved by the board or the shareholders.
To be effective, a consent resolution must be signed by all the directors (if a board resolution) or all of the shareholders (if a shareholder resolution). Multiple counterparts of the consent resolution can be used, eliminating the need to have the signatures appear on the same piece of paper.
Whether shareholder or director action is the result of a formal meeting or a consent resolution, the action taken should be evidenced by an appropriate entry in the corporate minute book. Most auditors will begin their review of corporate records with the minute book. If the book is up to date and contains regular records of board and shareholder activity, the auditor will be favorably impressed. This good impression may aid the entire audit process.
What types of activity should be reflected in the minute book? Routine day-to-day business activities don’t need to be included. For example, if John Doe, Inc. is engaged in the manufacture and sale of widgets, separate resolutions aren’t required to document each sale. The articles or state statute already provide the authority for this activity. However, if John Doe, Inc. does something outside of the scope of its ordinary business, a resolution should be reflected in the corporate minutes. Similarly, a lender or supplier may request a copy of a resolution showing that a particular officer of your corporation has authority to contract with the lender or supplier.
Here’s a partial list of activities that may require a resolution for the corporate minute book:
- Opening bank accounts or establishing borrowing authority with a bank (most banks will provide you with a form resolution)
- Written employment agreements
- Shareholder agreements, if the corporation is a party
- Tax elections, such as one to elect S corporation status
- A small business corporation election pursuant to Internal Revenue Code Section 1244 (optional)
- Amendments to the articles or bylaws
- The purchase or sale a business
- The purchase, sale, or lease of property to be used by the business including such things as an office building, computer system, company car or other items outside of the ordinary course of the business
- Loans, financing, bond issuance
- Reorganizations, including mergers
- Dividend declarations
- Approval of plans to merge, liquidate, or dissolve
- Employee benefit plans, including pension and profit-sharing plans, health insurance and others
- Settlement of lawsuits and claims, indemnification of officers and directors
- Stock issuance
- Changes of registered agent or registered office
- Filling vacancies on the board or for officers
- Authority to enter certain contracts
- Establishing committees or appointing members to serve on committees
- Redemption or retirement of corporate shares
- Salary matters pertaining to corporate officers
- Resolutions ratifying prior corporate acts by officers or directors
Resolutions should clearly state the authorized action and describe by name or office the person or persons authorized to perform acts or sign documents to carry out the action. For example, John Doe, Inc. plans to acquire a new computer system from Computer, Inc. John Doe, company president, has already negotiated the purchase, and the board has authorized it.
If a resolution involves a transaction between the corporation and an officer or director, the resolution should spell out, in great detail, the terms and conditions of the transaction. It should demonstrate that there has been an arm’s length negotiation between the officer and director and the corporation and that the value paid is fair. This process can avoid claims down the road.