A resolution is a written document that describes some action by the owners or managers of a company. Corporations are required by state law to make resolutions, which are routinely prepared regarding the actions of the board of directors and sometimes regarding shareholder actions. Although an LLC is not required by law to make resolutions, sometimes there are practical business reasons for an LLC resolution.
Business owners form their company's legal structure as a limited liability company, or LLC, for a variety of reasons, one of which is that state LLC laws do not require that the LLC be run with the formality of a corporation. This means that an LLC does not have to hold regular meetings, keep minutes of meetings or document company action in the form of a written resolution.
Read More: LLC Vs. SP
State Law Record Requirements
State LLC laws often include a requirement that an LLC maintain certain records at its principal place of business, such as a copy of the LLC's articles of organization or copies of tax filings. Some states, such as Washington and Florida, require an LLC to keep a “written statement” specifying, among other things, each member’s capital contribution and any right to receive a distribution of the contribution. An LLC resolution can be used to meet this record keeping requirement.
State LLC laws provide that an LLC can be managed by all its members or by a designated manager or managers. Although members can be managers, the members can designate a non-member as manager. Depending on the management structure chosen, it may not be apparent to an outside party, such as a bank, other financial institution or government agency, who is authorized to sign contracts or otherwise act on behalf of the LLC. In these situations, an LLC resolution is required to indicate to the outside party who is in charge. In some situations, the outside party will provide a form of resolution to use.
Documenting Important Decisions
An LLC resolution can also be used to document important decisions made by the owners, usually referred to as members. For example, the decision to enter into a long-term lease or sign a contract with significant financial risk should be documented in the form of a resolution that describes the action to be taken, that the members met and discussed the matter and that all members approved the decision. This can aid in avoiding future disputes in which a member may claim to have not been informed or had an opportunity to discuss the matter before a decision was made.
Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.