A resolution of the board of directors is a formal documentation of the actions taken by the board in a meeting. It is an effective corporate governance tool that is also legally recognized to see through the direction that the company will take. Whether it is the approval of mergers, the authorization of huge expenses, or the election of officers, resolutions will see to it that the actions of the board are properly documented. This how-to guide shall walk you through preparing an effective board resolution.
Know Why the Resolution Is Needed
In starting to prepare a board resolution, you must know why it is necessary. A resolution is supposed to formalize the actions of the board in essential matters and presents that those kinds of decisions have been made with due consideration. Typical resolutions may involve approval of budgets, assigning a new member to the board, permitting financial transactions, or accepting legal settlement.
The first ten or so words of each resolution should succinctly state the problem it is trying to solve or the issue it is trying to address, in addition to stating the action that the board has decided upon. In this regard, a clear understanding of the purpose of the resolution will guide its drafting and ensure the document is concise and effective.
Structure of a Board Resolution
The format followed by a well-structured board resolution is what makes it clear and lawful. Although some minute details may vary from organization to organization, most resolutions typically contain the following components: Heading: The heading should include the name of the corporation and the nature of the meeting-for instance, regular or special meeting-at which the resolution was passed. This also usually carries the date of such a meeting.
- Title: The document should be clearly titled a “Board of Directors Resolution” to distinguish it from other documents originating from the board.
- Preamble: This is the section that introduces the background and setting of such a resolution. It begins with the word “Whereas,” which should then be followed by a brief description of the issue being taken up by the board. Here, the rationale leading to the making of such a decision and that lays the foundation for the action the board is to take is outlined.
- Resolution Statement: This is the meat of the document, where it states what is resolved by the board through action. The beginning of a resolution statement starts with the phrase “Resolved, that…”, which is tailed by the description of the action distinctly and concisely. Example: “Resolved, that the Board hereby approves the acquisition of XYZ Corporation.
- Signature Section: This is the section that needs to be signed by the secretary of the board or any other officer authorized to do so. This means formal testimony that indeed the resolution has been passed and recorded as stated.
Drafting the Resolution
To draft a resolution, what is needed is what the board has decided upon, the reason for reaching such a decision, and any supportive documentation. Head the first line with a clear heading and title followed by the preamble, which gives an explanation that led to the context of the decision.
Then, word the resolution statement to be specific, without allowing for any questions. If a financial transaction is included in the resolution, make sure to include amounts, dates, or conditions the board has decided on. Finally, add in the signature section to validate the resolution.
Reviewing and Finalizing the Resolution
Immediately after drafting, the resolution accuracy and completeness have to be checked. It is prudent to ensure the resolution was an accurate reflection of the board’s decision and that information was captured. After its writing, the document has to be checked by counsel or senior members of the board for confirmation that the action addresses corporate bylaws and is in line with legal requirements. Second, after the checking and approval of the resolution, it gets signed and forms part of the board’s official records.
Conclusion Effective Board Resolutions for Corporate Governance
Formulation of a board resolution should be clear and accurate for the assurance of good governance in the organization. A well-structured resolution with all the details in their correct positions will make it a legally binding document on the decisions of the board. Be it the approval of strategic moves or internal matters; well-drafted resolutions are considered crucial for recording the role of the board in deciding upon the way forward of the organization.