Corporate resolutions are like promises. They represent commitments your company makes, things that they want to do, or directions your company will go in, or they memorialize decisions that your company, its owners, directors, or shareholders make.
But why are they needed? Why don't you just make your decision on your own, without any written resolution? Why do you need a sheet of paper that says what you will or won't do, much less a sheet of paper that is debated on and voted on by your company? It seems like a lot of work and a formality that is unnecessary.
But that would be incorrect—in fact, not having, voting on, and writing corporate resolutions can wind up causing serious legal problems for your business. Our Chicago business lawyer at Ellis Legal explains more on this below.
Getting Everyone Involved
One reason resolutions help is that they show that your company, as a whole, is on board with a decision or a direction your company will take. That way, nobody can come back later and allege that an officer or director made a poor decision or did something illegal, unethical, or careless on their own.
Taxes
Resolutions can often have tax benefits.
It may not always be clear what an expense is for, when money is brought into the company, or where it came from—these are differences that can affect how much taxes you pay. A resolution can document where money is coming from or why it's being used so you can "back up" your tax decisions to the IRS if you need to later on.
Policy and Procedure
Much like policy and procedure manuals, resolutions can serve as a guidebook, telling the world—and specifically, if needed, a court—what your company decided and that your actions were simply in accordance with your resolution.
So, for example, a resolution that declares something to be a trade secret would help in the event that someone contests whether or not that something was, in fact, a trade secret. It shows the court that you considered that something to be a trade secret.
Succession Planning
As time goes on, you may have different owners, officers, or people charged with running your company. Of course, a comprehensive succession plan is always the best idea, but resolutions can help successors see what your company did or decided, allowing for a smooth transition.
Apparent and Actual Authority
Worried about someone signing contracts on your company's behalf without your permission? You can pass a corporate resolution that says who, exactly, has the authority to sign contracts or to bind the company to promises or obligations. Later, if it turns out someone bound you to an obligation who wasn't authorized to do so, the resolution can document that the person had no authority to do what he or she did.
Speak with a Chicago business law attorney at Ellis Legal at (312) 967-7629 today about your company's policies and procedures to help keep your company out of legal trouble.