Quite simply, directors’ resolutions are documented, formal decisions that have been made by the Board of Directors on behalf of the company. Think of them as a list of rules that help direct and govern the corporation’s business proceedings.
Don’t know what the company’s stance is on borrowing or hiring executive employees? These are the sort of matters that you can or should document as resolutions.
An immeasurable number of reasons exist as to why Boards choose to document their decisions or actions with an official resolution.
A prime reason worth highlighting is the legally binding nature of the decisions reflected in a Board Resolutions document.
This offers legal protection in ensuring that resolutions are adhered to as the document stands as a record if compliance comes into question.
In this article, we’ll highlight the 10 most common director resolutions that you should have as guiding principles for your new corporation.
Resolution 1: Bank Account Opening
The opening of a company’s bank account should serve as one of the first matters on the agenda for a new company.
A board resolution is required to authorise and document the opening of such an account as it sets out the list of authorised individuals who may access the account and the signatories required for specific transactions.
This is critical as it allows company members to identify the persons responsible in the event of unauthorised transactions.
Resolution 2: Issuance of Shares
The issuance of shares is a commonplace method to increase funding for the company and can affect the company’s balance sheet.
Money you receive increases the equity of your company’s shareholders and decreases the remaining number of shares your company has allotted for issuance.
As this is clearly an important mechanism, any decisions that concerns share issuance should be directed as a resolution.
Resolution 3: Borrowing
As a budding start up, it is typical for the need for funding to be acquired. If you haven’t had the fortune of having a co-founder who’s up to the knees with dollar bills, the bank or a credit institution would be your next best bet.
For borrowing to occur, a company’s authority to borrow money, encumber its assets and perform its obligations under a loan should be a decision duly authorised by the Board.
The lack of such a resolution will cripple your ability to source for funds if going into debt is not a scenario that has been authorised by the Board.
Resolution 4: Adoption of Stock Option
A stock option confers on the employees the right to buy a specific number of shares at a set price within the company by a certain date.
As Directors exercise a fundamental duty to act in the best interests of the company, the adoption of a stock option plan can assist in creating heightened employee loyalty and attract the best talent.
Having a Board Resolution that explicitly states the approval and procedures where a stock option can arise is therefore useful in setting out employee expectations from the get-go.
Resolution 5: Hiring of Executive Employees
The company’s procedure in hiring executive employees is an important issue that should be clearly set out in the form of a resolution.
Not only does a resolution grant the relevant hiring committee the authority to hire, it also ensures that the committee is clear on the hiring processes and helps mitigates risks associated with Anti-bribery and corruption laws.
Resolution 6: Election of Chairman
One can liken the role of the Chairman to that of a conductor of a world-class orchestra. He must ensure that all its musicians come together harmoniously to create a spectacular performance as the success of the orchestra depends on this.
Similarly, the chairman is elected by the company’s board of directors to preside over Board meetings and help build unanimity in board decisions by exercising a casting vote in a deadlock.
With that in mind, his identity and selection are vital decisions that should be formally documented by the very directors who select him.
Resolution 7: Company’s Constitution
The company’s constitution, by its very name suggests that this is a document that cannot be easily altered at a whim.
As the constitution sets out the fundamental framework of the company’s organisation and its’ members/personnel’s rights, duties and obligations – any decisions to alter it has to be one that is officially documented by the board.
Resolution 8: Winding-up and dissolving of Company
A decision that cannot be taken lightly – a company’s dissolution is one that affects all its members.
That being said – where directors feel it is no longer a profitable choice to keep the company running, the option to dissolve is a matter that can be voluntarily decided by its’ Board of Directors and reflected through a resolution.
A board resolution pertaining to this subject, does not only have to indicate the company’s decision to dissolve, it can also list the various (future) circumstances where the Board of directors have agreed should result in the company’s inevitable wind-up.
Resolution 9: Appointment or change of Company’s Auditor
As a statutory requirement for a newly incorporated company in most jurisdictions, the appointment of an auditor should serve as one of your first resolutions amongst the Board.
While auditors must be appointed on an annual basis by the shareholders, the Board of Directors may appoint “First Auditors” during a company’s first financial year.
Resolution 10: Entering into an Agreement
Most applicable to material contracts, however defined by the company – a board resolution is typically required to document the approval and authorization of an important contractual relationship.
This serves as an irrefutable record that such a contract has been duly sanctioned by the higher-ups and can easily be pulled out for compliance purposes.
While we hope the information above has been useful in helping you discern common, key decisions that should be documented into resolutions, we know that it’s probably still confusing times for a budding founder like yourself.
When you have a million things to consider – ranging from finding an office space to hiring key personnel – you don’t want to find yourself in the deep end of the legal sharks when/if things go south.
To aid in your quest to survive and thrive in the complex business world, GLS offers a Total Start-Up Support solution which provides you with all business-critical templates for the price of what most pay for coffee each month.
Needless to say, our solution comes with a 24/7/365 helpline whereby one of our legal professionals can assist you with any queries that you may have.
If you liked this topic, you might also like 10 Most Common Shareholder Resolutions.
*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.