Meaning
Official records of the actions and policies adopted by the directors of a corporation provide the primary evidence of corporate intent. Board resolutions document the approval of major events such as signing a lease, opening a bank account or issuing new shares. They provide a clear paper trail that protects the company from claims that an officer acted without authority.
Every significant commitment requires a corresponding entry in the minute book.
Voting Procedure
Decisions are typically reached through a formal vote during a scheduled meeting or via written consent. For board resolutions to be valid, the meeting must have a quorum of directors present as defined by the bylaws. Each director usually has one vote regardless of their shareholding in the entity.
The resulting document is signed by the secretary to certify its authenticity.
Corporate Action
Legal entities can only act through the individuals who have been granted the power to represent them. When a third party enters a contract with a company, they often ask for copies of relevant board resolutions to confirm the signer has the right to bind the firm. This practice reduces the risk of entering into a deal that the company could later disaffirm.
It is the standard method for authorizing the sale of assets or the acquisition of another business.
Audit Trail
Maintaining a chronological file of these documents is a core requirement for good corporate standing. During a sale or an audit, investigators will review the board resolutions to ensure that all equity issuances and loans were properly approved. A missing resolution can delay a transaction or lead to a breach of warranty in a merger agreement.
Keeping these records organized demonstrates to potential investors that the business is managed with professional rigor. Rigorous record keeping also protects directors from personal liability by showing they followed proper procedures when making difficult choices.
