What is a corporate resolution?
A corporate resolution is a written document created by the board of directors of a company detailing binding corporate action. A board of directors is a group of people who act as a governing body on behalf of the shareholders of a company. The board of directors helps set policies, appoint officers and oversee the direction of the company. A corporate resolution is important because it is the legal document that provides the rules and framework for how the board can act in various circumstances. A corporate resolution is usually found in the minutes of board meetings, although its form and structure may vary.
Key points to remember
- A corporate resolution is a written document created by the board of directors of a company detailing binding corporate action.
- A corporate resolution is the legal document that provides the rules and framework for how the board can act in various circumstances.
- Corporate resolutions provide a written record of decisions made by the board of directors and the management team.
- Decisions made through a corporate resolution include changes to a dividend policy, executive compensation and debt issuance.
How corporate resolutions work
A corporate resolution describes the decisions and actions taken by the board of directors of a company. A corporation can use a corporate resolution to establish itself as an independent legal entity, separate from the owners. A corporate resolution helps the company remain independent from its owners by ensuring that decisions made by the board of directors and company officers do not create a conflict of interest with the owners.
A company’s board of directors is responsible for making important decisions and establishing corporate policies for management to follow. A board of directors is required of every public company and is responsible for helping a company set general goals, supporting leadership functions, and ensuring that the company has adequate and well-managed resources. Many critical decisions are recorded in the minutes of board meetings as corporate resolutions.
Corporate resolutions help to hold the board accountable for various laws and regulations and ensure that the board meets its fiduciary duty to shareholders. Corporate resolutions provide a written record of decisions made by the board of directors and the management team. These resolutions may be reviewed by regulators, the Internal Revenue Service (IRS), shareholders and company officers at a later stage to ensure that the board of directors and management of the company are in compliance with regulations, tax laws. and the articles of association.
Types of corporate resolutions
There are many types of decisions made by a company’s board of directors that are described in a corporate resolution, including significant financial decisions and changes in ownership.
A resolution may describe the officers authorized to act (trade, sell, transfer or hedge securities and other assets) on behalf of the company. The resolution would state who is authorized to open a bank account, withdraw money and write checks. This is a common type of resolution, as many banks, brokerage houses, and asset managers need this information, as well as some securities agencies, which help confirm the legal owner of an asset. property.
Any modification of the dividend distribution policy of the company to its shareholders must be made by resolution, including increases or suspensions of the dividend. Dividends are cash or stock payments to shareholders as a reward for investing in the company.
Other common actions that may require a corporate resolution are as follows:
- Purchase of real estate
- Apply for a loan or credit
- Issuing debt to raise capital or money, such as corporate bonds
- Vote for the new board members
- Changes in the management team, such as dismissal or appointment of a new chief executive officer (CEO)
- Compensation of executives including salary and bonuses paid to executives
- Issue of new equity shares for the company
- File a new patent
- Mergers and acquisitions, which consist of bringing together two companies
- Joint ventures, which are strategic agreements or partnerships with other companies
- Changes to the pension plan such as issuing stock options to employees
- Changes in employee health benefits
- Renting equipment or purchasing important assets, such as a factory
After a vote, the corporate resolution serves as official documentation. It usually does not need to be submitted to any oversight body or government agency.
Concrete example of a corporate resolution
In December 2017, the National Company Law Tribunal (NCLT) extended the period during which Electrosteel Steels Limited was able to initiate its corporate insolvency resolution process. The extension was for an additional 90 days, effective January 17, 2018. Electrosteel Steels Limited, based in Kolkata, was in debt of Rs 10,274 crore; he owed this total to a consortium of banks led by the SBI.
Faced with insolvency proceedings, ESL was admitted to the insolvency proceedings. The recommendation for admission was made at the meeting of the Committee of the Creditors Committee (CoC) on December 6, 2017. The NCLT executive members noted that the minutes of the meeting highlighted the approval of the resolution by the CoC at 99.82%.