Jan 5, 2023 — Business Loan — Eric Giguere
Unlike corporations and other business entities, LLCs aren't legally required to document certain business decisions. Documenting the decisions between members of an LLC can help protect it and prevent costly 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 help you understand the basics of LLC member resolutions. It will also help you get on the same page as the other LLC owners and document any important decisions.
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. If the resolution passes, it would be recorded as evidence in case another member claims that the sale was not properly approved.
Let's look closer at the key components of LLC member resolutions. Here are some examples of member solutions.
Before we go into detail about LLC member resolutions let us first discuss articles of organization and operating agreement. These documents should have been completed when your LLC is formed. They will eventually establish the rules and voting procedure for all LLC resolutions.
Articles of organization will contain all members and management structure as well as other important information about the LLC.
Operating agreements will include information about the day-to-day operations of the business. It also lists the member ownership, voting rights. responsibilities, powers, duties. buy-and-sell rules. meeting procedures.
An operating agreement may include scenarios that could lead to a solution.
Even though specific details such as who has authority to take particular actions are clearly stated in an operating agreement LLC member resolutions can still prove useful for unanticipated circumstances.
Refer to the articles of organization and operating agreement for details on voting rights and power during resolutions.
Let's say, for instance, that you have an LLC with five members. When the proposed resolution comes to a vote, is each member's vote weighted equally? It is possible that your operating agreement states that votes will be based on ownership share. If so, members with greater stakes in the company might have more voting rights.
Basic day-to-day operations don't require member resolutions. LLC resolutions can be used only for critical decisions that often carry a high financial risk.
A resolution doesn't allow for clients to go out for lunch or snacks for employees. LLC members usually have the authority to do such things without having to check with other owners. Operating agreements should clearly outline any discrepancies.
These are just a few examples of situations where an LLC member resolution might be needed:
LLC member resolutions may be used for any 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.
As we have already mentioned, every company has its own unique process for the resolution of member disputes. Your operating agreement defines meeting procedures. This is a general overview of the process.
Any LLC member may propose a resolution. The proposal must be voted on by all members.
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. All of this information would be included in the operating agreement prior to the meeting.
If the resolution gets enough votes to pass, it is considered passed. To formalize the vote, the members will sign the document.
For obvious reasons, LLC resolutions are far more common in LLCs with multiple members. They can prevent disagreements and disputes if members forget about past decisions.
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. You may also find your records useful in the event of a dispute with a manager, employee, or vendor. The resolution of a dispute is not about passing a decision but about the formal documentation of an action.
Additionally, some third parties might require an LLC resolution to clarify authority, even for single-member LLCs. This might be necessary for transactions in business or loans from banks.
Most LLC resolutions for members are simple. The resolution can often be reduced to a single page document, which includes the following:
As you go through the process, it is helpful to refer to an LLC member resolution template. We will continue to discuss templates in more detail as we move through this guide.
To make your life easier, there are several different online tools that you can use to help with LLC member resolutions. These three options are my favorite:
The Northwest Registered Agent is a great resource for LLC startup businesses. They provide incorporation services, registered agent services, and free legal documents--including LLC member resolution templates.
Northwest Registered Agent provides additional documents to help you formalize LLC procedures. Templates include articles, operating agreements,s and meeting minutes. You can also use articles of amendment. These templates are completely free and registered agent services begin at $125 annually.
LegalZoom offers many business services, including those for LLCs. Their operating agreements for LLCs have been created in excess of 2 million, making them one of the most sought-after solutions. 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. Starting at $99, business formation services begin at $79.
Rocket Lawyer allows you quickly and easily to create an LLC member resolution. Rocket Lawyer can help you create an LLC member resolution. All you have to do is fill out a corporate resolution template.
You'll be prompted to fill in form fields about your business name, the resolution is adopted, members, and more. Rocket Lawyer supports digital signing, which allows you to officially sign everything online. If you're not a Rocket Lawyer member, the fee is $39.99 per document. Alternately, you can sign up for Rocket Lawyer and get unlimited legal documents for only $39.99 per month.
I know what it is like to be an LLC member and have experienced the process. Here are some quick tips to simplify the process. For beginners, the following best practices will be helpful.
Member resolutions are not legally required so it can be difficult for you to adequately document the meeting and vote. You don't want to leave out any vital information that could render the resolution invalid and make it unusable.
There are many online templates you can use to create resolutions for LLC members. I recommend you to start with the ones listed, but feel free and creative to use any template.
A business attorney might also be able to recommend a template. The templates in this guide are sufficient in most cases.
What happens when the resolution is finalized?
Your LLC will follow the motion passed by the vote. You want to ensure that any dispute or problem you have in five years' time is resolved quickly.
I recommend storing your LLC resolution in a safe place with all other important business documents. You can keep your LLC resolution with all other business documents, including operating agreements, articles of organization, amendments, tax records, etc. It is safe to keep both a hard copy and a digital version in the cloud.
You could have a tie situation if you have an even number of members in your LLC. You can avoid deadlocks by being proactive and having a plan in place for dealing with such situations.
Operating agreements should contain voting deadlock clauses. This will help you avoid costly litigation, mediation and prevent operational delays.
One example is to have an external party or individual with the authority to break the tie. This neutral party should be familiar with the industry and business.
Alternately, you could rotate tie-breakers. In this scenario, one member would cast the deciding vote in the event of a deadlock. A second member would take the final decision in the event of a deadlock.
If you don't have the ability to resolve this internally, then you will likely be forced into mediation or arbitration. Injunctions or judicial dissolutions could be issued in extreme circumstances. But you can avoid this by having a simple plan in place to break the tie.
You now have a good understanding of LLC member resolutions, and how they can be used. There are some other things you should consider.
As I mentioned above, LLC member resolutions will not be valid if they can't be accessed in the case of a dispute. We have compiled a guide that will help you find the best cloud storage solutions for your business. This will allow you to store important business documents, such as resolutions, safely.
Lots of LLCs research member resolutions before obtaining a loan. Before you make a decision, be sure to read our list of top business loans. This will help you get the most amount of money at the best rate for your loan purpose.