The hierarchical structure of a firm is made up of several stakeholders. A company’s performance is determined by its shareholders, investors, directors, advisers, consultants, and workers, each of whom plays specific responsibilities. The corporation needs to follow a chain of command at all of these levels to continue productive operating, which is where corporate directors come into play.
What Is a Board Resolution?
A Board Resolution is a legal document that aids in defining the responsibilities of corporate offices as well as the outcome of any votes or selections the board takes with reference to the business. They are often written once a new board member is elected. However, they are also utilized when and/or if the business wishes to grow, recruit or fire a sizable many employees, sell shares, purchase any kind of intellectual property rights, and/or make any other big decisions that will have a substantial impact on the business. Board Resolutions are an accurate record of the choices made at a board meeting and may be found in the board minutes.
Criteria for Passing a Board Resolution
The board of directors is in charge of making major corporate decisions; nevertheless, they rarely participate in the day-to-day operations of the business. Board decisions trickle down the corporate structure, where they are carried out by the corresponding business divisions. Consequently, board meetings are not a routine, informal events.
A board resolution must meet two requirements in order to pass:
- Quorum – A company’s charter specifies the bare minimum of directors needed to call a board meeting. A quorum is a term for this minimal quantity. For instance, if a corporation sets quorum at 2, it implies that even if there are five total directors, at least two must attend each board meeting in order for a motion to be approved. The amount of quorum needed varies from company to company and mostly relies on the size of the enterprise.
- Chairwoman & Voting – To ensure a board meeting runs smoothly, the board designates one of them as the meeting’s chairperson. Additionally, this individual has the power to cast the deciding “casting a vote,” which is used when a proposal receives an equal number of votes from supporters and opponents. The board resolution’s certified final draft must be signed off on by the chair. Within a month following the meeting, the corporation records the board resolution in its books.
A Board Resolution Is Needed When?
Board decisions are not required to be submitted to any kind of oversight body, including the government. It is kept on file in case any significant shareholders want to confirm the acts the board of directors has taken on their behalf or for internal self-evaluation purposes. Alternately, as part of their audit/verification processes, some organizations, including banks, brokerage houses, the IRS, or the court, may need copies of a board resolution.
A board resolution is primarily required to document two things:
- to document decisions made at a board of directors meeting about corporate issues (apart from stock). A board resolution is another name for this;
- to document the choices taken by corporate shareholders about the firm stock. A business resolution is another name for this.
The board of most firms is made up of a combination of significant shareholders. However, certain businesses may have distinct boards for shareholders and directors. Their individual agreements specify the scope of their voting rights. Board resolutions are also referred to as business resolutions in certain circumstances.