What Is an LLC Resolution? (All You Need to Know)
A Limited Liability Company resolution is a legal document that helps to protect your business.
As a business consultant specializing in limited liability companies, I have over a decade of experience helping clients understand LLC formation, resolution, and organization.
After researching and consulting our panel of LLC specialists, I'll provide you with all the pertinent information you need about LLC resolution.
Quick Summary
- An LLC resolution is the official document that sets the rules for the operations of a company.
- The advantages of an LLC gives clear guidelines on the role of each member of the company.
- According to the latest data looking at the March 2022 status of businesses that opened in March 2021, 20.8% of private sector businesses in the U.S. fail within the first year.
- My experience has shown that companies refer to resolution mostly when making important decisions.
What is an LLC Resolution?
An LLC resolution is a legal document that describes the roles members of an LLC should play. This document also highlights situations that which voting might be required.
For our company, the main objective of the resolution is to set clear guidelines that ensure smooth operations of the entity.
Consulting a business attorney for obtaining credible LLC member resolution templates can help ensure all necessary information is included and that the documentation is valid.
Why Do I Need an LLC Resolution?
From my practical experience, you need an LLC resolution because it helps you as a legal entity to protect your interests both as a board member and shareholder.
Corporate resolutions are formal documents that record significant decisions made by LLC members, ensuring compliance with state laws and maintaining governance within the company.
About 1 in 5 U.S. businesses fail within their first year of operation, according to the latest data from the U.S. Bureau of Labor Statistics (BLS). Given there are 33.2 million small businesses across the country, it makes sense that a percentage of them will fail.
Here are other two reasons why an LLC resolution is important:
- LLC member resolutions minimize confusion by clarifying expectations, legal guidelines, and company procedures.
- Written resolutions serve as proof in court, clearly outlining legal processes for addressing issues.
Furthermore, a legal document written and signed by all legal entities will also help everyone know their legal rights and have legal consequences for breaking legal procedures.
"In essence, an LLC resolution is the formal acknowledgment of the company's intentions, binding its members or managers to specific actions or agreements."
- Jon Morgan, CEO, Co-Founder and Editor-in-Chief of Venture Smarter
When Is an LLC Resolution Used?
LLC member resolutions are used when an important decision needs to be made within the LLC; these decisions may carry significant financial risk.
In our case, we used our resolution when our company was seeking funding and when we wanted to open a bank account.
Having written resolutions makes processes more efficient within an LLC, but it also prevents disputes between members over who has the authority to do what.
Having proper documentation of resolutions is critical for securing loans and maintaining credibility when dealing with financial institutions.
LLC resolutions are used in circumstances that entail financial risk and when buying or selling real estate, filing patents, and adding or removing company members.
All LLC owners should have a resolution in place, especially to avoid potential disagreements among themselves or with banks and other business entities regularly.
What Should LLC Members’ Resolution Include?
LLC members' resolution should include a written account of the acts taken by an entity during an official meeting. It is a document that conveys the votes or consent of company members.
LLC member resolutions should include several things. First, it should consist of the list of LLC members and whether they support the proposal.
The LLC's operating agreement outlines the requirements for passing resolutions and must be modified to reflect changes in operations and ownership structure.
For our LLC, two members did not support the proposal, so their reasons were cited in the minutes.
Other information that the resolution should have included the following:
- Name of the company and organizer's name
- Purpose of business
- Terms and conditions of membership (if any)
- Authority and duties of LLC manager(s) and member(s)
- Rules
Who Has the Authority to Make Resolutions?
Any LLC member can propose and pass resolutions, but all LLC members must approve them.
For this resolution to pass, it must receive a majority vote.
If the resolution received a majority vote, those who did not vote in favor of it had no choice but to obey it, even if they did not vote on it.
The article of the organization must be filed with the secretary of state.
How Do I Pass an LLC Member Resolution?
Drawing from my practical experience, I've seen how one can pass an LLC member resolution by suggesting a proposal and securing a majority vote among the members.
LLC resolutions play a crucial role in documenting important business decisions and maintaining formal processes within the company.
Usually, you will propose to adopt or amend a particular document, such as the company's articles of organization or your operating agreement [1].
If the resolution requires a formal vote, draft a plan for the meeting where it will be voted on.
Give staff sufficient time to read over all documents involved in the change so they can clearly explain the proposal to members.
Remember that a formal vote is required for all minor changes, so your proposal will need to be sent out with a notice of meeting 30 days before being voted on.
The agenda should include a description of what is being changed and why and how many people must be present at the meeting to pass the proposal.
Once you are sure that there are no mistakes in any documents, schedule your meeting and send notice to all members in good standing at least ten days before the meeting takes place.
How LLC resolutions can supplement the operating agreement
LLC resolutions can supplement the operating agreement in several ways.
Firstly, they provide a formal record of important decisions made by the members, which can help to prevent disputes and misunderstandings.
Secondly, LLC resolutions can provide additional guidance on specific issues not addressed in the operating agreement.
For example, if the operating agreement does not specify the procedure for buying or selling real estate, an LLC resolution can provide the necessary guidance.
Furthermore, LLC resolutions can help to ensure that the LLC is in compliance with state laws and regulations. By documenting important decisions and actions, LLC resolutions can provide evidence of the LLC’s compliance with state requirements.
Finally, LLC resolutions can provide a clear record of the LLC’s financial transactions, which can be useful for tax purposes and other financial reporting requirements.
Single Member vs. Multiple Member Resolutions
LLC resolutions come in the form of contracts, purchases, loans, and other pertinent business matters.
1. Single Member LLC
While it may seem unnecessary for a single-member LLC to file resolutions, the document may serve as a legal record to keep track of the entity's business operations and transactions.
Filing resolutions would formally document contracts, loans, purchases, or sales and may be essential for any legal action brought to the business entity.
2. Multi-Member LLC
Multi member LLC resolutions are significant as formal documents that capture collective decisions made by multiple owners within an LLC. These resolutions have to be proposed, agreed on, and voted unanimously by the members.
To illustrate, a member may suggest purchasing a property or allotting some of the company's funds for investment. A resolution is necessary to carry out the decision once all the members vote and agree to take action.
The Operating Agreement may be used as a guideline on how to undergo the process legally. Resolutions must be documented and filed to serve as an official record of the company's operations.
FAQs
Is a Resolution a Legal Document?
A resolution is a legal document used to meet the record-keeping requirements of other states.
Is a Resolution the Same as an Operating Agreement?
A resolution is not the same as an operating agreement. A bylaw outlines the rules and regulations of the LLC, while a resolution documents the results of votes and other decisions made by members.
Are Resolutions Legally Binding?
Resolutions are legally binding documents needed for record-keeping. It provides courts, government agencies, and other institutions an insight into the LLC's operations.
Do All Members of an LLC Need to Agree on a Resolution?
All members of an LLC do not need to agree on a resolution if it is outlined in the operating agreement. The specific rules and voting thresholds regarding member resolutions should be clearly defined in these documents.
It is also important to store crucial business documents, including tax records, along with LLC resolutions and other official paperwork to avoid disputes and misunderstandings in the future.
Reference:
- https://www.sba.gov/blog/basic-information-about-operating-agreements
