When starting a new business and forming a limited liability company (LLC), many questions arise. One of those may be about LLC resolutions.
Essentially, an LLC resolution is a document intended to record an action taken by LLC owners, also known as members.
While corporations are required to have resolutions, LLCs are not. However, the actions involved in resolutions require a member vote, so having a record of them is critical in the event of a future dispute.
Voting rights and procedures might be spelled out in the LLC articles of organization, but these can be changed in the operating agreement. An operating agreement is not usually required but is highly recommended. The operating agreement should clearly define:
- The share of each member’s interests in the LLC
- How profits and losses will be allocated to each member
- Each member’s rights and responsibilities
- The management structure and management roles of members
- The voting rights of each member
- Rules for meetings and voting
- What happens when a member sells their interest, becomes disabled, or dies
It’s a good idea to have an attorney’s help when drafting your operating agreement so that you can be sure you’re covering all bases to protect all members and avoid future issues.
Resolutions are signed by all members who voted for the resolution, but do not have to be signed by members that vote against it. However, members who voted against it are bound by the terms of the resolution.
In some cases, an outside party may require that the LLC have a particular resolution. For example, if a non-member manager is authorized to conduct bank transactions, the bank may require a resolution documenting this authorization.
Any member of the LLC can propose a resolution and then all members must vote on it, per the voting rights and procedures stated in either the articles of organization or the operating agreement.
A resolution should have a title, a detailed description of the action taken, and the signatures of all active members.
Examples of Resolutions
Here are some common LLC resolutions:
- Opening a bank account or obtaining a loan
- Making a large purchase, such as property or a company vehicle
- Granting authority to a manager or member
- Signing important contracts
- Approving profit distributions
- Adding new members
- Approving additional capital contributions by members
- Transferring membership
- Adding or removing managers
What if Tie Votes Occur?
If your LLC has an equal number of members, a tie vote is possible. You need to avoid this situation in advance by specifying in the operating agreement how voting ties are handled. The best option is to distribute the voting rights in such a way that a tie cannot occur. Often, one member is more involved in the company and may therefore be granted a greater share of the vote.
You can also specify some other way to settle a deadlock, such as having a designated non-member, perhaps a manager or an advisor, make the deciding vote. You could also designate that a specific member has the deciding vote, or rotate the deciding vote among the members.
A more extreme dispute resolution could be to sell the LLC. This can give everyone an incentive to find ways to come to an agreement.
All important documents and records, including resolutions, must be kept at the company’s principal place of business. Such documents include:
- Articles of Organization
- Operating Agreement
- Tax Records
- Meeting Notes
- Amendments of Resolutions
The two most important points to keep in mind are that resolutions represent crucial documentation of LLC actions and that your LLC should have a robust operating agreement in place that resolves all issues and disputes. If there is no operating agreement, disputes may be resolved by state laws and regulations or may end up in court.
Having an attorney draft your operating agreement is highly recommended. An attorney can also review resolutions to make sure they are thorough and clear.