An LLC member resolution is a document that describes an action taken by the members of an LLC.
In most cases, a resolution will pertain to issues of the company’s operations or management. They may also be used to document important decisions made by the LLC such as taking out a business loan or opening a bank account.
Depending on your management structure, some banks and lenders may require your LLC to pass a resolution confirming who has the authority to sign authorizing documents. No matter the purpose, resolutions are a useful way to keep records of business decisions and can help avoid costly disputes.
Another common reason an LLC may choose to pass a resolution is in the course of doing business with other companies. This can be especially important when deciding to add a corporation or another LLC as a member. Adding a new member to your LLC can have a long-term impact on the company’s financial structure, tax structure, and how it votes and makes important decisions moving forward. It can be more difficult to remove a member from your LLC than it is to add one, so taking the time to discuss and vote on the decision is critical.
Any member can propose a resolution, and each resolution generally requires a majority vote to pass. In some cases, banks, lenders, or other third parties may request that a resolution be passed before your business can open an account, take out a loan, or complete any number of other business transactions.
The rules and procedures for voting on an LLC’s resolutions are set forth in either your articles of organization or your operating agreement. Typically, a majority vote is required to pass a resolution. However, it is permissible to set rules for other voting percentages as your business sees fit. While an operating agreement is not required by most states, drafting one is an incredibly important step in forming a well functioning business.
Your operation agreement should also set forth the conditions under which your LLC will require resolutions. Whether member-managed or manager-managed, there is no need to call for a resolution to determine every issue faced by your business. It is wise, though, to develop a clear plan for when a resolution is appropriate.
Finally, you should determine how to validate your resolutions. This can include written consent, verbal consent, or any other option your company agrees to. Typically, once a resolution is passed, those who voted in favor will sign it, while those who voted against it will not. No matter the voting breakdown, however, all members must abide by the terms of the new resolution.
LLC member resolutions are typically used to seek majority approval or official documentation of important company decisions. Some common issues put up as resolutions include:
While resolutions are far more common in multi-member LLCs who use them to document groups decision or come to a consensus on important issues, a single-member LLC can benefit from resolutions and, in some cases, may be asked to provide them. Just as banks, lenders, and other third parties can seek out resolutions from multi-member LLCs before completing a business transaction, they may require the same of a single-member LLC to clarify authority.
Although it may seem unnecessary to pass resolutions with yourself, proper documentation can be even more useful to a single-member LLC should any type of dispute arise either within the company or with outside business associates or vendors.
If you have an even number of LLC members, there is a possibility your voting may result in a tie. The best way to avoid getting trapped in a deadlock is to set forth a procedure to deal with this situation ahead of time. This is another important point to include in your articles of organization or operating agreement. Failure to do so could have grievous effects on the LLC, including substantial expenses, loss of time, possible mediation or arbitration, litigation, or even dissolution.
Deadlock provisions are typically meant to do one of two things, create a mechanism to directly break a tie or establish a policy or procedure to motivate members to come to an agreement before the deadlock affects company assets or business interests. Some popular options include:
If all else fails, LLCs will often turn to litigation or other dispute resolution options as their last resort. These options include:
At the end of the day, the best thing your business can do to prevent ending up in any of these situations is to put the necessary time and effort into crafting an operating agreement that can guide you through even the most difficult disputes and disagreements your business may face.
An LLC member resolution is a simple document that will typically include the following:
Descriptive Title: The title should clearly lay out the issue or issues being considered.
Resolved Issues: Details will vary depending on the issue at hand, but this section should include information relevant to the specific issues being decided. If you are voting on leasing a property, for example, this section will likely include the address of the property, length of the lease, monthly rent, and basic lease terms.
Signatures: A passed resolution must be signed by members who voted in favor of the resolution.
