An LLC member resolution is a document that explains a decision made by an LLC’s members.
In most circumstances, a resolution will address concerns relating to the company’s operations or management. They may also be used to record significant LLC actions, such as obtaining a company loan or creating a bank account.
Business Actions Documented
Some banks and lenders may ask your LLC to enact a resolution indicating who has the power to sign authorising papers, depending on your management structure. Resolutions, regardless of their intent, are a valuable tool to keep track of corporate choices and may assist prevent expensive disagreements.
Contracting with Other Companies
Another typical cause for an LLC to approve a resolution is while conducting business with other businesses. This is particularly true when determining whether to add a corporation or another LLC as a member. Adding a new LLC member may have a long-term influence on the company’s financial structure, tax structure, and how it votes and takes crucial decisions in the future. Removing a member from your LLC might be more difficult than adding one, so taking the time to debate and vote on the choice is vital.
Who Has the Power to Make Decisions?
A resolution may be proposed by any member, and each resolution normally needs a majority vote to succeed. In rare situations, banks, lenders, or other third parties may need a resolution to be approved before your company may establish an account, get a loan, or conduct any number of other commercial operations.
Establish the rules in your articles of incorporation or operating agreement.
The rules and processes for voting on resolutions of an LLC are outlined in either the articles of formation or the operating agreement. A majority vote is usually necessary to approve a resolution. However, your company may establish regulations for alternative voting percentages as it deems suitable. While most states do not need an operating agreement, establishing one is a very vital step in building a well-functioning firm.
Your operating agreement should also specify the circumstances under which your LLC will be required to pass resolutions. There is no need to call a resolution to resolve every problem that your company has, whether it is member-managed or manager-managed. It is, nonetheless, prudent to have a clear strategy for when a settlement is suitable.
Finally, decide how you will verify your resolutions. This might be written permission, verbal consent, or any other method agreed upon by your firm. When a resolution is approved, those who voted in favour sign it, while those who voted against it do not. Regardless of the vote split, all members must follow the conditions of the new resolution.
Resolutions of LLC Members Examples
LLC member resolutions are often used to get majority support or formal recording of critical business decisions. Some of the most prevalent resolutions include:
Establishing a bank account for the LLC
Obtaining a safe deposit box
Getting a loan
Real estate purchases and sales
Contracts with considerable financial risk
Approving LLC profit distributions Delegating LLC power
Accepting new capital contributions
Approval of new members Approval of membership transfers
Resolutions for Single vs. Multiple Members
While resolutions are significantly more prevalent in multi-member LLCs, which utilise them to memorialise group decisions or reach agreement on critical matters, a single-member LLC might benefit from them and, in certain situations, may be required to submit them. Just as banks, lenders, and other third parties may obtain resolutions from multi-member LLCs before executing a commercial transaction, a single-member LLC may be required to do the same to clarify power.
Although passing resolutions with oneself may seem redundant, appropriate documentation may be even more valuable to a single-member LLC should any form of conflict emerge, either inside the organisation or with outside business colleagues or suppliers.
What to Do in a Management Crisis
If your LLC has an even number of members, there is a chance that your vote will end in a tie. The greatest method to prevent being stuck in a stalemate is to plan ahead of time how you will handle this issue. Another critical thing to mention in your articles of incorporation or operating agreement. Failure to do so might result in severe consequences for the LLC, such as significant fees, lost time, probable mediation or arbitration, litigation, or even dissolution.
Impasse provisions are often intended to achieve one of two things: develop a mechanism to directly break a tie or create a policy or process to incentivize members to reach an agreement before the deadlock threatens company assets or commercial interests. Some common choices are:
External tie-breaker: In the event of a tie, an external tie-breaker is generally a specified organisation or person who has the ability to decide one way or the other. It is critical to choose a tie-breaker who is knowledgeable about your business and industry so that all members are confident in their ability to make an educated choice.
Rotating/Alternating or Casting Mechanisms: Rather than bringing in an outside voice, this option includes rotating a tiebreaking, or casting, vote among LLC members. When there is a stalemate, one member is granted the ability to break the tie. The tie-breaking vote is passed to a different member during the following impasse.
Buy/Sell Provisions: This option enables one member to sell their stake in the LLC to another member in order to force a consensus. There are numerous methods to carry out this option, including using an impartial appraiser to value a member’s stake and the “shotgun” technique, in which one member makes an offer to another that they may accept or decline. While the second is more likely to result in litigation, both procedures may successfully break a tie without dissolving the LLC if properly done.
Put or Call Mechanisms: A “call” is the right to buy another LLC member’s stake at a specified price, while a “put” is the right to sell your interest if certain circumstances occur. While this is a popular alternative, it might be more challenging to draught. Members must decide on valuation and what events will set off this mechanism. It is not always applied to all stalemate votes, but rather to particular matters such as big financial choices.
Split or Sale of the Firm or Its Assets: In the case of an impasse, a forced partition or sale of the company is another effective incentive to reach an agreement. This option does exactly what it says it does. It enables LLC members to devise a strategy to split the firm among the consenting members or to sell the company entirely if a settlement cannot be reached.
If all else fails, LLCs will often resort to litigation or other forms of conflict resolution as a last resort. Among these alternatives are:
Involuntary or judicial dissolution: A member seeks involuntary dissolution of the LLC due to an impasse that threatens irreparable harm to the firm.
Custodianship or receivership: The court appoints someone to administer the firm because the impasse is so severe that routine business operations are impeded.
Injunction: A court injunction prohibits or forces a firm to do particular actions in order to assist avert irrevocable damage caused by the impasse.
Specific performance: A member or management asks the court to compel another member to carry out their contractual responsibilities under the operating agreement.
Judicial expulsion: This step permanently removes a member from the LLC.
Mediation vs. arbitration: Mediation is a voluntary dialogue lead by a neutral party to resolve a disagreement, while arbitration is a privately held trial led by impartial persons who are paid to act as judges.
At the end of the day, the best thing your company can do to avoid getting into any of these scenarios is to spend the time and effort required to create an operating agreement that can lead you through even the most challenging conflicts and disagreements your company may experience.
A Basic LLC Member Resolution Template
An LLC member resolution is a straightforward document that normally includes the following:
Descriptive Title: The title should clearly state the issue(s) under consideration.
Details may vary based on the problem, however this part should contain material pertinent to the specific issues being considered. If you are voting on leasing a property, for example, this part will most likely contain the property’s location, lease duration, monthly rent, and basic lease conditions.
Signatures: Members who voted in favour of the resolution must sign the resolution.