Why Corporate Formalities Matter
"It's just paperwork" is how businesses lose their liability protection.
Corporations and LLCs exist as legal entities separate from their owners. This separation protects owners from personal liability. But the separation only exists if you treat the company as separate - which means corporate formalities like board resolutions.
Skip the formalities, and courts may "pierce the corporate veil," holding owners personally liable for company debts. It happens more often than business owners think.
Board resolutions are the paper trail proving you operated properly. They're not bureaucracy; they're protection.
When You Need a Board Resolution
Almost always required:
- Opening or closing bank accounts
- Appointing or removing officers
- Issuing stock or equity
- Taking out loans or credit lines
- Signing major contracts
- Buying or selling significant assets
- Entering into leases
- Filing for trademarks or patents
- Authorizing litigation
- Amending bylaws or articles
Required in specific situations:
- Related-party transactions (extra documentation)
- Distributions to shareholders
- Changes to registered agent
- Establishing subsidiaries
- Compensation for executives (especially public companies)
Sometimes required:
- Routine contracts (depends on amount and bylaws)
- Hiring key employees
- Policy changes
Check your bylaws. They specify what requires board approval versus officer authority.
The Anatomy of a Board Resolution
Header Information
RESOLUTION OF THE BOARD OF DIRECTORS
OF
[COMPANY NAME]
Adopted as of [DATE]
Include the full legal name exactly as it appears in your articles of incorporation.
Recitals (The "WHEREAS" Clauses)
Optional but useful. Explain context for the action being taken.
WHEREAS, the Corporation desires to establish a business checking account
for operational purposes; and
WHEREAS, the Board of Directors deems it in the best interest of the
Corporation to authorize certain officers to act on behalf of the
Corporation with respect to such account;
Recitals aren't legally required but help future readers understand why the resolution was adopted.
Operative Clauses (The "RESOLVED" Statements)
The actual authorization. Be specific about what's being authorized and who can do it.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation is hereby authorized
to open a business checking account at [Bank Name], and that [Name],
[Title], and [Name], [Title], are hereby authorized to execute any
documents necessary to open and maintain said account, with the authority
to deposit and withdraw funds as single signatories for amounts up to
$[Amount], and with dual signature required for amounts exceeding $[Amount].
Signature Block
For formal meeting resolutions:
The undersigned Secretary certifies that this resolution was duly adopted
at a meeting of the Board of Directors held on [Date], at which a quorum
was present.
____________________________
[Name], Secretary
Date: _______________
For written consent:
The undersigned, being all of the Directors of the Corporation, hereby
consent to the adoption of the foregoing resolution effective as of the
date first written above.
____________________________
[Director Name]
____________________________
[Director Name]
____________________________
[Director Name]
Written Consent vs. Meeting Resolution
Written Consent in Lieu of Meeting
What it is: Directors approve action by signing a document instead of meeting.
Requirements:
- Must be unanimous (all directors sign)
- Must be authorized by state law and bylaws
- Written consent document filed with corporate records
- Effective when last director signs (or date specified)
Advantages:
- No meeting scheduling required
- Faster execution
- Works for remote directors
- Less formal documentation
Disadvantages:
- Requires unanimity - one holdout blocks action
- No deliberation record
- May not be appropriate for contentious decisions
Formal Meeting Resolution
What it is: Directors meet (in person or virtually), discuss, vote, and record in minutes.
Requirements:
- Proper notice per bylaws (often 3-10 days)
- Quorum present (usually majority of directors)
- Majority of quorum approves (unless supermajority required)
- Minutes recorded and filed
Advantages:
- Allows deliberation
- Minority can be overridden
- Creates record of discussion
- May be required for certain actions
Disadvantages:
- Scheduling complexity
- Notice requirements create delay
- More formal documentation required
State-Specific Requirements
Delaware
Delaware is the most permissive state for corporate formalities.
- Written consent allowed unless prohibited by certificate of incorporation
- Directors may meet anywhere
- Electronic signatures accepted
- Virtual meetings explicitly authorized
- No residency requirements for directors
Delaware corporations operating elsewhere still follow Delaware corporate law for internal governance.
California
California has specific requirements often overlooked:
- Written consent requires prompt notice to non-signing directors (if any)
- Annual meeting required; written consent can substitute
- Certain transactions require shareholder approval that can't be bypassed
- Independent director requirements for some transactions
- Enhanced rules for nonprofit corporations
Texas
Texas Business Organizations Code requirements:
- Written consent effective when signed by required directors
- Certificate must be included in corporate records
- May require certified resolution for certain filings
- Annual report required (not board resolution, but often authorized by board)
New York
New York has formality requirements:
- Written consent must be unanimous
- Prompt notice to shareholders after director written consent
- Stricter requirements for loans to directors/officers
- Special rules for professional corporations
Common Resolution Types
Bank Account Resolution
Banks often provide their own forms. If drafting your own:
RESOLVED, that the Corporation is hereby authorized to open a business
[checking/savings/money market] account at [Bank Name], located at
[Branch Address or "any branch"];
RESOLVED FURTHER, that the following persons, holding the following
offices, are hereby authorized, on behalf of the Corporation, to:
(a) sign checks, drafts, and orders for payment of money;
(b) make deposits and withdrawals;
(c) execute banking agreements and instruments;
(d) designate additional authorized signers; and
(e) perform any other acts necessary to conduct banking business:
[Name], [Title]
[Name], [Title]
RESOLVED FURTHER, that for transactions exceeding $[Amount], the
signatures of two authorized signers shall be required;
RESOLVED FURTHER, that [Bank Name] may rely upon these authorizations
until it receives written notice of revocation from the Corporation.
Stock Issuance Resolution
RESOLVED, that the Corporation is hereby authorized to issue [Number]
shares of [Class] Common Stock to [Investor Name] at a price of $[Price]
per share, for an aggregate purchase price of $[Total], pursuant to the
Stock Purchase Agreement in substantially the form presented to this
meeting;
RESOLVED FURTHER, that the issuance is exempt from registration under
the Securities Act of 1933 pursuant to Section 4(a)(2) thereof, and
applicable state securities laws exemptions;
RESOLVED FURTHER, that the officers of the Corporation are hereby
authorized to execute and deliver the Stock Purchase Agreement, stock
certificates, and any other documents necessary to effect the issuance.
Officer Appointment Resolution
RESOLVED, that effective [Date], [Name] is hereby appointed to serve
as [Title] of the Corporation, to serve at the pleasure of the Board
of Directors, with such duties and authority as are customary for such
office and as may be assigned from time to time by the Board;
RESOLVED FURTHER, that [Name]'s annual compensation shall be $[Amount],
payable [bi-weekly/monthly], plus such benefits as are provided to
similarly situated employees;
RESOLVED FURTHER, that the officers are authorized to execute an
employment agreement with [Name] in substantially the form presented
to this meeting.
Major Contract Authorization
RESOLVED, that the Corporation is hereby authorized to enter into a
[Service Agreement/Lease/Purchase Agreement] with [Counterparty Name]
for [description of subject matter], substantially in the form presented
to this meeting, with such changes as the [CEO/President] deems
appropriate, provided that the total financial commitment of the
Corporation shall not exceed $[Amount];
RESOLVED FURTHER, that [Name], [Title], is hereby authorized to execute
and deliver said agreement and any related documents on behalf of the
Corporation.
Loan Authorization Resolution
RESOLVED, that the Corporation is hereby authorized to borrow up to
$[Amount] from [Lender Name] pursuant to a [Term Loan/Line of Credit]
bearing interest at [Rate or Index + Spread], with repayment terms of
[Description];
RESOLVED FURTHER, that [Name], [Title], and [Name], [Title], are hereby
authorized to execute the loan agreement, promissory note, security
agreement, and any other documents required by the Lender;
RESOLVED FURTHER, that the Corporation is authorized to grant a security
interest in [Collateral Description] to secure its obligations under
the loan;
RESOLVED FURTHER, that the officers are authorized to provide personal
guarantees [if applicable: up to $[Amount]] if required by the Lender.
Nonprofit Board Resolutions
Nonprofit corporations have additional requirements:
Conflict of Interest Procedures
When a director has a personal interest in a transaction:
WHEREAS, [Director Name] has disclosed a potential conflict of interest
with respect to the proposed [Transaction], as more fully described in
the written disclosure statement filed with the Secretary;
RESOLVED, that after due consideration, the Board of Directors, by vote
of the disinterested directors, finds that the [Transaction] is in the
best interest of the Corporation and approves the transaction on the
terms presented;
[Director Name] recused [himself/herself] from discussion and voting
on this resolution.
IRS Requirements for Tax-Exempt Organizations
501(c)(3) organizations must document:
- That compensation is reasonable (comparability data)
- That conflicts are disclosed and managed
- That major transactions serve exempt purposes
- That private benefit is not excessive
Board resolutions are evidence of proper process.
Secretary's Certificate
Third parties (banks, landlords, investors) often require a Secretary's Certificate confirming resolutions are valid:
SECRETARY'S CERTIFICATE
I, [Name], hereby certify that I am the duly elected Secretary of
[Corporation Name], a [State] corporation (the "Corporation"), and
that as such I am authorized to execute this Certificate.
I further certify that:
1. Attached hereto as Exhibit A is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Corporation
on [Date].
2. Said resolutions have not been modified, rescinded, or revoked
and remain in full force and effect as of the date hereof.
3. The persons named in said resolutions hold the offices indicated
therein.
4. The Corporation is in good standing under the laws of [State].
IN WITNESS WHEREOF, I have executed this Certificate as of [Date].
____________________________
[Name], Secretary
[Corporate Seal, if applicable]
Document Retention
Board resolutions are permanent records. Retention requirements:
- Minimum: Life of corporation plus 3-7 years
- Best practice: Permanent retention
- Format: Original signed copies; digital copies acceptable with proper authentication
- Location: Corporate minute book or secure digital repository
Resolutions may be needed decades later for:
- Ownership disputes
- Merger due diligence
- Litigation defense
- Tax audits
- Government investigations
Assume every resolution you adopt will be scrutinized eventually.
Using AI for Resolution Drafting
AI can accelerate routine resolution drafting:
Works well for:
- Bank account authorizations
- Officer appointments
- Routine contract approvals
- Annual authorizations
- Standard policy adoptions
Needs human review for:
- Stock issuances (securities law implications)
- Related-party transactions (conflict analysis)
- Unusual transactions (specific legal requirements)
- First-time situations (no precedent to follow)
DocMods can generate resolution drafts from descriptions:
"Generate a board resolution authorizing John Smith as CEO with $150,000 salary"
The AI produces properly formatted resolution with appropriate RESOLVED clauses. Human review ensures accuracy and completeness for your specific situation.
The Bottom Line
Board resolutions are corporate hygiene. Skip them and you create liability exposure. Do them properly and you build a defensible corporate record.
For routine matters, use templates and AI assistance. For significant transactions, involve counsel. For everything, maintain proper records.
The fifteen minutes spent documenting a board authorization can save thousands of dollars and countless headaches when someone eventually asks "was this properly authorized?"
