Unlike corporations and other business entities, LLCs aren’t legally required to document certain business decisions. However, documenting decisions made between members can protect your LLC and help you avoid expensive disputes.
Since there aren’t any state or federal mandates in place for this procedure, there aren’t specific requirements for drafting an LLC resolution, which can be confusing for members.
This guide will teach you everything you need to know about LLC member resolutions so you can get on the same page with the rest of the LLC owners and formally document important decisions.
What Are LLC Member Resolutions?
LLC member resolutions are written documents describing decisions and actions taken by the members. The purpose of this documentation is to confirm and record that the members agreed on a decision, which helps avoid disputes and misunderstandings down the road.
Any LLC member can propose a new resolution, and it usually requires a majority vote to pass.
For example, if an LLC member wants to sell a piece of land owned by the company, they’d propose a resolution and formally document the vote by all members. Assuming the vote passed, the resolution would serve as a record if another member claimed the sale wasn’t properly approved.
The Basics of LLC Member Resolutions
Let’s take a closer look at the core components of LLC member resolutions. The following section will break down the rules for member solutions, what the document should include, examples, and more.
Articles of Organization and Operating Agreement
Before we dive deeper into LLC member resolutions, we first need to discuss articles of organization and operating agreements. These documents should be drafted when you initially form your LLC, and they’ll ultimately define the rules and voting procedures for all LLC resolutions.
The articles of organization will include all members, management structure, and other essential information about the LLC.
Your operating agreement will take this information one step further and include details on the day-to-day operation of the business. It also contains the percentage of member ownership, voting rights, responsibilities, powers, duties, buy-and-sell rules, meeting procedures, and more.
The operating agreement could even contain scenarios where a resolution could be used.
Even if things like which members have authority to take specific actions are clearly outlined in an operating agreement, LLC member resolutions can still be useful for unforeseen circumstances.
In terms of voting rights and power during a resolution, you should defer to the operating agreement and articles of organization.
For example, let’s say you have an LLC with five members. When the proposed resolution comes to a vote, is each member’s vote weighted equally? Your operating agreement might say that votes are based on ownership share, which would give more voting power to members who own more stake in the company.
When to Use LLC Member Resolutions: Examples and Scenarios
Member resolutions aren’t necessary for basic day-to-day operational actions. For the most part, LLC resolutions are only used for crucial decisions, often carrying a significant financial risk.
Taking a client out to lunch or buying snacks for the employee break room wouldn’t qualify for a resolution. LLC members typically have the authority to do things like this without checking with the other owners. Any discrepancies should be clearly outlined in the operating agreement.
But here are some common scenarios where an LLC member resolution might be necessary:
- Changing Profit Distributions — Let’s say an LLC member wants to put a larger percentage of profits back into the company’s operating capital for the coming year. If this is just a short-term decision for one fiscal year, you wouldn’t need to change the company’s operating agreement. Instead, the members can vote on this and record the decision in a resolution for how distributions will be handled, and things will return to normal the following year.
- Getting a Loan or Opening a Bank Account — Any action with significant financial implications should be backed up by a resolution. This eliminates any confusion over which members have the authority to write checks or use funds from a loan. Some financial institutions require this type of documentation for internal purposes, which is sometimes called a “banking resolution.”
- Entering New Contracts — Contracts involving lots of money or risk should be passed and documented with a resolution. Anything from bringing on a long-term consultancy firm to property sales and new business partnerships could fall into this category.
- Adding, Removing, or Transferring Member Rights — Most of these scenarios should be outlined in your operating agreement. But sometimes, an unforeseen circumstance could arise, like the death of a member. If you don’t have a clause for this in your operating agreement, your LLC would need to default to the state guidelines. These actions should still be backed up with an LLC member resolution.
In short, LLC member resolutions can be used for any big business decision. What constitutes as “big” or “important” is subjective. But it’s best to err on the side of caution here and use a resolution for anything that falls into a gray area.
Passing LLC Member Resolutions
As previously mentioned, the exact process for a member resolution will vary for each company. Your operating agreement defines meeting procedures. But generally speaking, here’s a quick overview of how this process works.
Any LLC member can propose a resolution. But all members must cast a vote on the proposal.
In most cases, a majority rule will be required to pass an LLC member resolution. But voting rights and voting power might be based on ownership in the company. Again, this would all be outlined in the operating agreement before the meeting.
If the proposal gets a “yes” from enough members, the resolution is passed. Then the members will sign the document to formalize the vote.
Single-Member LLC Resolutions vs. Multi-Member Resolutions
For obvious reasons, LLC resolutions are far more common in LLCs with multiple members. They help prevent disputes and disagreements if a member’s memory gets a little hazy about a decision made in the past.
While it might seem a bit silly to create a resolution for your single-member LLC, there are definitely scenarios where you can use a resolution as a formal record.
First, it’s a good business practice to get in the habit of documenting important financial decisions. Your records could also be useful if you have a dispute with an employee or manager within the company or even an outside vendor or business partner. In this case, the resolution is less about passing a decision and more about formal documentation of an action.
Additionally, some third parties might require an LLC resolution to clarify authority, even for single-member LLCs. Some business transactions or even bank loans could require this.
What to Include in LLC Member Resolutions
Most LLC member resolutions are fairly straightforward. The entire resolution can usually be consolidated to a single-page document that includes the following:
- LLC name
- Date and time of the meeting
- Title and description of the proposal (i.e., new contract, loan, profit distributions, etc.)
- Names of members who voted and approved the resolution
- Names of members who voted and dissented
- Statement of approval and adoption of the resolution
- Signed and dated signatures of each member
It helps to follow an LLC member resolution template as you’re going through this process. We’ll discuss templates in greater detail as we continue through this guide.
3 Tools to Improve LLC Member Resolutions
To make your life easier, there are several different online tools that you can use to help with LLC member resolutions. The following three solutions are my favorites:
#1 — Northwest Registered Agent
Northwest Registered Agent is an excellent resource for businesses and LLC startups. They provide incorporation services, registered agent services, and free legal documents—including LLC member resolution templates.
In addition to the resolution templates, Northwest Registered Agent has other documents you can use to formalize LLC procedures. Example templates include articles of organization, operating agreement, meeting minutes, articles of amendment, and more. These templates are 100% free, and registered agent services start at $125 per year.
#2 — LegalZoom
LegalZoom provides a wide array of business services for different entity types, including LLCs. They’ve created nearly two million operating agreements for LLCs, making it one of the most popular solutions on the market today. So if you don’t currently have an operating agreement, you can use LegalZoom to get organized so things go smoothly when a resolution arises.
All of LegalZoom’s LLC formation services come with a financial authorization letter, which can be used to show who is authorized to open a bank account and potentially eliminate the need for a member resolution. Operating agreements start at just $99, and business formation services start at $79.
#3 — Rocket Lawyer
Rocket Lawyer lets you create an LLC member resolution with ease. Just start with a corporate resolution template, answer some questions, and Rocket Lawyer will auto-fill the document on your behalf.
You’ll be prompted to fill in form fields about your business name, the resolution being adopted, members, and more. Rocket Lawyer even supports digital signatures, so you can officially sign everything online. If you’re not a Rocket Lawyer member, the fee is $39.99 per document. Alternatively, you can become a member for $39.99 per month and create unlimited free legal documents.
3 Tricks For LLC Member Resolutions
As someone who has been through LLC member resolutions in the past, I want to share some quick tips and actions you can take right now to simplify this process. The following best practices are perfect for beginners.
Trick #1: Use an LLC Member Resolution Template
Since member resolutions aren’t legally required, it can be tough to properly document the meeting and vote on your own. The last thing you want is to omit any important information that could essentially void the resolution, making it useless.
Fortunately, there are tons of great LLC member resolution templates that you can find online. I’d recommend starting with the resources listed above, but feel free to use any template you see fit.
You could also consult with your business attorney and ask them for a template that they recommend. But in most cases, the templates we covered in this guide will be adequate.
Trick #2: Keep Your Records in a Safe Place
What happens after the resolution?
Your LLC will take whatever action gets passed during the vote. But if there’s a dispute or problem one, two, three, or even five years down the road, you want to make sure that the resolution is easily accessible.
I recommend storing your LLC resolution in a safe place with all other important business documents. You can keep it with your operating agreement, articles of organization, amendments, tax records, and more. Keep a physical copy as well as a digital copy stored safely in the cloud.
Trick #3: Create a Plan For Voting Deadlocks
If your LLC has an even number of members, you could run into a tie scenario during a resolution vote. To avoid deadlocks, you should be proactive and have a procedure in place to deal with this scenario.
Voting deadlock stipulations should be included in your operating agreement. This will help you avoid costly litigation, mediation and prevent operational delays.
For example, you could have an external group or individual with authority to break the tie. This should be a neutral party who is familiar with the business and industry.
You could also rotate tie-breakers amongst members. In this scenario, one member would cast the deciding vote in the event of a deadlock. During the next deadlock, another member would have the authority to decide, and so on.
If you can’t handle this internally, you’ll likely be forced into mediation, arbitration, or other methods. In extreme scenarios, injunctions, judicial dissolutions, or judicial expulsions could be ordered. But you can avoid this by having a simple plan in place to break the tie.
What to Do Next
Now that you have a firm grasp on LLC member resolutions and how to use them, there are a couple of other considerations that you should evaluate.
As mentioned above, LLC member resolutions are useless if you can’t access them in the event of a dispute. Check out our guide on the best cloud storage services for your business. This will make it easy for you to safely store your resolutions and other important business documents.
Lots of LLCs research member resolutions before obtaining a loan. If you fall into this category, read our list of the best business loans before making a decision. This will help you get the most amount of money at the best rate for your loan purpose.
Source: quicksprout
A Beginner’s Guide to LLC Member Resolutions