Need for resolutions
Generally, directors or shareholders need not adopt a formal corporate resolution in order to bind the corporation or otherwise confer authority to bind the corporation. Still, resolutions have their place and importance. Formally adopting and recording a resolution in the company minutes should reduce or eliminate misunderstandings among directors and shareholders, the corporation itself, and its creditors or other parties related to or interested in the resolution’s subject matter.
Corporate resolutions also are invaluable as proof of the proceedings of a meeting. They become part of the corporation’s permanent record and are relied upon as being accurate in their representation.
Courts frequently have considered corporate resolutions to be contracts. A resolution may represent an agreement between the corporation and a creditor, or more often between the owners/shareholders and the managers/directors. Therefore, in litigation the court may limit the evidence determining the contract in dispute to the actual wording of the resolution that was recorded in the company minutes.
Recognized and Well-Established
It has been said that the minutes of meetings are presumed to be accurate (1), and that they are prima facie evidence of the facts they recite (2). When minutes, and the resolutions contained within them, are considered along side the corporation’s bylaws, they have been held to be the highest proof of the powers of corporate officers (3) (emphasis mine), and the best evidence of the actions (emphasis mine), events and decisions they record (4).
As an example of this, when the minutes of both directors’ and stockholders’ meetings contained statements authorizing certain stock options, the court presumed these statements to be correct and would not allow a major stockholder to enjoin the corporate officers from exercising the stock option allegedly granted when the stockholder was mentally ill (5).
Highest proof. Best evidence. Could that language be any stronger? Really, what proof is higher than the highest? What’s evidence is better than the best?
When to Resolve
Corporate resolutions are different from bylaws. Bylaws are more permanent and continuing.
Resolutions usually pertain to single acts that can be voted upon and passed at any lawful (“lawful” in regard to the corporate articles and bylaws, not state statutory law) corporate meeting or by unanimous consent without formally convening an actual in-person meeting. A motion is made and seconded, and the resolution is voted upon and approved or not. Generally, there is no absolute rule for when a resolution is the proper form for taking action.
A formal resolution is likely essential:
- When the corporate articles of incorporation, corporate charter, bylaws, or governing state statute requires an action to be taken by resolution.
- When the corporation buys (acquires) or sells (disposes of) a large or the major portion of its total assets or holdings.
- When a certification is required to be filed or publicly recorded stating the stockholders or directors have granted authority for the corporation to act or perform. For instance, when a corporation sells its own real estate, a stockholders’ or directors’ resolution (or both) should be adopted authorizing and approving that sale, and further authorizing and directing corporate officers, such as the president or a vice president, to prepare and sign the deed, escrow instructions and other transactional documentation. In fact, it is common for title insurance companies to require such a resolution to be “certified” for their record before they will agree to insure title and close the sale.
A formal resolutions is advisable:
- When the directors or stockholders (as may be required by the articles of incorporation or bylaws) decide to amend the corporate articles, charter or bylaws;
- When permanently (or until otherwise resolved) changing corporate management regulation;
- When the subject of the resolution is a matter that is referred to from time-to-time; and
- When the subject of the resolution is important to the corporation’s overall business operation or existence.
If the corporation’s conduct is likely subject to future changes, acting by resolution is usually more appropriate than amending the bylaws.
Resolutions provide a clear understanding and good record of their subject matter, while allowing the flexibility to be more easily modified or repealed as situations change and time goes on.
Directors have the right to repeal or rescind any previous action as long as it does not breach a contract or impede a vested right, such as a shareholder’s right to a dividend, voice or vote.
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(1) Young v Janas, (1954) (Del. Ch.) 103 A. 2d 299.
(2) Santa Fe Hills Golf and Country Club v Safelic Realty Co., (1961) S. Ct. Mo., 349 S. W. 2d 27; Hopewell Baptist Church v Craig, (1956) 143 Conn. 593, 124 A. 2d 220; Stipe v First Nat’l Bank, (1956) 208 Ore. 251, 301 P. 2d 175; Wear v. Harrisburg Steel Corp., (1956) 70 Dauph. (Pa.) 83.
(3) Gentry-Futch Co. v Gentry, (1925) 90 Fla. 595, 106 So. 473; Supreme Kingdom, Inc. v Fourth Nat’l Bank, (1932) 174 Ga. 779, 164 S. E 204.
(4) American & British Mfg. Corp. v New Idria Quicksilver Mining Co., (1923) 293 F. 509; Central Clay Drainage Dist. v Hunter, (1927) 174 Ark. 293, 295 S. W. 19; Kilsby v Aero-Test Equipment Co., (1957) (Tex. Civ. App.) 301 S. W. 2d 703.
(5) My Florist, Inc. v Harris, (1973) N. Y. S. Ct. N. Y. L. J. 6-6-73.