Idaho Business Law: When Should You use Corporate Resolutions in Your LLC

By Lane V. Erickson, Idaho Business Attorney

By way of legal standards for time, it really wasn’t that long ago that the limited liability company (LLC) structure, didn’t even exist as an option for small business owners. The first began in 1977 when the state of Wyoming passed legislation allowing a new type of company to be created, which was the LLC. The problem was, the IRS ignored this type of business entity. It wasn’t until 1993, after several subsequent IRS approvals were made, that Delaware passed a statute known as the Delaware LLC Act that became the example for all LLC laws that came later in the different states. By 1996, all 50 states had enacted LLC statutes that allowed this business structure to be created within their own State boundaries.

The reason the LLC business structure was so popular was because it perfectly fit small businesses. It allowed the pass-through taxation of a partnership or sole proprietorship with liability protections that were usually only available through a regular corporation. In other words, it took the best of both and combined them into a new entity that provides the ultimate in flexibility for small business owners when it comes to making decisions that will be best for their business.

Since the creation of the LLC statutes in Idaho, the premier business lawyers at the Racine law office have assisted numerous clients in creating LLCs for their small businesses. We understand the statues and the laws, and we understand the needs most small-business owners have. Our goal is to assist each quiet in creating the type of LLC structure that will best fit small business needs.

Our team of Idaho business attorneys include partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of our lawyers is skilled and experienced with business transactions and in helping our business clients especially when it comes to creating, preparing and/or reviewing their LLC small business. We are confident that we have the ability to answer your questions and to help you with your small business needs.

The purpose of this article is to describe how and/or when a corporate resolution may be an important part of your LLC business operations. We do this by first describe me what a corporate resolution is. We did discuss how a corporate resolution works, and then we discuss when a corporate resolution could and should be used as part of your small business LLC. Please keep in mind that this article is not exhausted on this topic. Rather, this is a starting place to give you some information to help you. If you are considering using corporate resolutions as part of your small business structure, you should consult with a qualified business attorney to get assistance in doing it correctly.

Defined simply, a corporate resolution is a contract between the individuals who are placed in power to make decisions for a business entity. For a corporation, this would include the director’s, as well as the officers who are directed to sign the corporate resolution. However, an LLC is structured differently.

Decision making authority in an LLC is usually given either to one or more managers, or it is simply retained by the owners of the LLC who are known as the members. The operating agreement will specifically define whether management of an LLC is given by authority to a manager or managers or whether it is retained by the owners or members of the LLC. The operating agreement acts as a contract between all the owners or members of the LLC. Because it is a contract, it does provide this decision-making authority to whoever is listed.

Similarly, a corporate resolution is also a contract between those who are in authority. The corporate resolution memorializes in writing, be specific decisions that are made by manager, managers or members depending on who is in authority to make decisions.

With the explanation above, some may ask that if there is already a written operating agreement then why would a written corporate resolution also need to be done? This is a good question. The main reason that corporate resolutions are used by LLC entities is because the operating agreement does not contemplate the specific decisions that sometimes need to be made.

For example, let’s assume that the LLC is the structure used for a small business operating a car wash. There are five owners in this business and there is a written operating agreement that contains all the information that is needed for operating the car wash business. Now suppose that one or more owners of the owners thinks it would be a good idea for the business to also purchase the adjacent business property to rent out.

In this instance, the business owners would create a corporate resolution that would indicate that the LLC will be purchasing the adjacent building for purposes of renting it out. Because this is so different from what the normal carwash business is, the corporate resolution would act as a contract between the owners indicating that they were all in agreement of doing this different business option. In other words, this becomes an additional contract between all the owners that works together with the original contract which is the operating agreement.

Using a corporate resolution is a good idea anytime a business is making a major decision. In the example above, the business was making a major decision of purchasing real estate. Additionally, the corporation was making a major decision to use the LLC to do a different type of business than what was normally being done.

A corporate resolution could also be used by an LLC anytime any other major decision is being made. These kinds of major decisions could include borrowing money from a lender; buying real estate, selling real estate, purchasing any other type of major asset, or selling any other type of major asset. Really, anytime the business makes a decision to do something that is unusual, out of the ordinary, or a major financial change, a corporate resolution would be a good idea.

We’ve assisted numerous small businesses in creating and setting up an LLC. We also have experience in helping business owners use a corporate resolution as part of their business structure. If you have questions or concerns, we are confident that we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.