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A limited liability company or LLC is one of the most popular ways business entities.
The main reason why business owners choose this business structure is because of its simplicity, both in terms of its initial formation and ongoing administration and management. This particularly extends to paperwork, where LLC owners don’t have to deal with an endless list of filing requirements.
However, sometimes documenting decisions made between members can still be useful, which is where LLC member resolutions come into play. Read on as we explain LLC member regulations and how you can use them in more detail below.
Why Are LLC Member Resolutions So Important?
LLC member resolutions are written documents that confirm and record decisions and actions taken by the members. Having written proof of decisions helps avoid disputes and misunderstandings between members down the line.
This doesn’t need to be a complicated document, and instead, should only include necessary information. Below is a list of some common situations when it’s recommended for LLC members to make resolutions:
- When an LLC member makes a decision concerning the company’s organization
- When members have to prove their authority to sign a loan on behalf of the LLC
- When the LLC decides to purchase or sell real estate and wants to document the property and sales price
- When a member must establish their authority to open a bank account on behalf of the LLC
Any LLC member can propose a new resolution, but it will require a majority vote to pass.
For instance, if a member wants to buy real estate on behalf of the company, they will first propose a resolution and then formally document the vote by all members. If the resolution gets the majority vote and passes, the LLC member resolution will be proof if another member claims the purchase of the land wasn’t properly approved.
How Do You Pass LLC Member Resolutions?
As mentioned, any LLC member can propose a resolution, but all members have to vote on it.
The majority of LLC members must vote in favor of the resolution to pass it, but every LLC can have its own voting rules. For example, some LLCs may assign different values to different member votes. For example, based on their percentage of interest in the company, a specific LLC member can have a greater say in the voting process.
The LLC can pass the resolution if it gets an affirmative vote from the required number of members. All members who approved the resolution will then sign the document, making it an official record. On the other hand, members who didn’t agree to the resolution don’t have to sign it, but they do have to accept the decision since it won the majority.
After everything is done, you should keep the resolution at the primary place of business registered for your LLC. Usually, it’s where all tax records and other official documents are maintained.
Quick Tips for LLC Member Resolutions
As mentioned, LLC member resolutions don’t have to be complicated. Here are some extra tips to help simplify the process further.
Stick to Single-Page Resolution Documents
Many people have the impression that LLC member resolutions should be excruciatingly detailed. They don’t.
Consolidating the entire resolution to a single-page document is much more preferable, which includes the following:
- LLC name
- Date and time of the meeting
- The proposal title and description, including new contract, loan, profit distributions, etc.
- Names of members who voted to approve the resolution
- Names of members who voted to oppose the resolution
- Statement of approval and adoption of the resolution
- Signed and dated signatures of each member
Use an LLC Member Resolution Template
The whole purpose behind preparing a template is to simplify the task at hand and the user’s life. So it’s no surprise an LLC member resolution template serves the same purpose.
Templates can also come in handy to ensure you don’t omit crucial information when documenting a decision, which could nullify the resolution.
The good news is there are a seemingly endless number of LLC member resolution templates available online. While you can use any template you see fit, just make sure they come from a reputable website.
Another option is to consult with your business attorney and ask them for an LLC member resolution template (if they have one).
Sign Up With an Online Legal Service
You’ll find a diverse range of online tools that can help you with LLC member resolutions, making your life even easier.
Out of all the options, Rocket Lawyer is our favorite. This service asks you some questions, such as your business name, the resolution being adopted, the involved members, and other relevant information based on a corporate resolution template. It then auto-fills the document on your behalf, taking away any unnecessary burden from your shoulders.
What’s more, Rocket Lawyer also supports digital signatures, allowing members to sign necessary documents online.
LegalZoom is another excellent alternative that has created over two million operating agreements for various LLCs. You can use the service to ensure things go smoothly whenever a resolution arises.
Plan How to Manage a Tie
Your LLC may have an even number of members, meaning you can have a tie scenario during a resolution vote. To avoid issues or deadlocks, you should have a procedure in place to deal with this.
We recommend having voting deadlock stipulations mentioned in your operating agreement to avoid costly litigation, mediation, and of course, prevent operational delays. It’s best to handle voting issues internally.
All you need is a simple plan to break the tie and avoid extreme scenarios. For instance, you can rope in a neutral, third-party individual or group familiar with the business and industry to break the tie.
The other option is to rotate tie-breakers among existing members. You can have one member casting the deciding vote in the event of a deadlock, and then another member getting the authority during the following deadlock, and so on.
Long-Term Strategies for LLC Member Resolutions
Now, let’s discuss the more strategic tricks that can help you handle LLC member resolutions.
Familiarize Yourself With Single-Member LLC Resolution vs. Multi-Member LLC Resolutions
LLC resolutions are understandably more common in LLCs with multiple members. But that doesn’t mean you cannot create a resolution for your single-member LLC.
Firstly, documenting important decisions and actions that affect your business is a good habit. These records can come in handy when you have a dispute with an employee or a manager within the company, or even an outside creditor or business partner.
It’s best to think of the resolution as formal documentation of action instead of simply passing a decision.
Secondly, LLC resolutions can help clarify authority—even for single-member LLC. Many banks and financial institutions require this for business transactions or passing loans.
Understand the Right Scenarios to Document
Passing LLC member resolutions shouldn’t be a day-to-day affair and are only for crucial decisions, especially those carrying considerable financial risk.
You should understand the difference between the above two scenarios.
For instance, giving an employee a week off from work doesn’t qualify for a resolution. However, if you were to sell a property owned by the LLC or hire a new CEO, you must document it and seek a vote.
Changing profit distributions, entering into new contracts, and adding, removing, or transferring member rights are crucial decisions requiring an LLC member resolution. Any decisions concerning a new bank account or applying for a loan should also be backed by a resolution, as both actions have significant financial implications.
Let’s discuss the above scenarios in more detail.
- When partners change their profit distribution ratios: Suppose a member wants to take a more significant percentage of profits away from the company’s operating capital. If the member wants this change for just one fiscal year, there won’t be any need to change the LLC’s operating agreement. Instead, all LLC members can vote on it and record the decision in a resolution for how distributions will be handled. For the next year, the profit distribution percentage can return to normal.
- When the LLC enters into a new contract: For obvious reasons, all contracts involving a substantial investment or risk should be passed and documented with a resolution. This also includes bringing on a long-term consultancy firm to property sales and entering into new business partnerships.
- Adding, removing, or transferring member rights: Anything related to members and their rights needs to be on the resolution. In addition, you should also make provisions for unforeseen circumstances, such as the death of a member. If you don’t have a clause for these situations in your operating agreement, your LLC will have to default to the state guidelines. This should again be backed up with an LLC member resolution.
Store Your Records Safely
Assuming your resolution is passed, your LLC will take the designated course of action. But there’s still a possibility of a dispute or problem years down the road, which is why you want the resolution to be easily accessible to avoid misunderstanding and lawsuits.
Keeping this in mind, you should store your LLC member resolution in a safe place, along with other crucial business documents, such as your operating agreement, articles of organization, and tax records. Even better if you can create a digital copy in addition to the physical copy, with the former being safely stored in the cloud.
Hopefully, now you should have a better idea about LLC member resolutions and how to use them.
The main purpose of maintaining the document is to provide evidence in case of disputes or opposition between members, ensuring the LLC stays protected from operational bottlenecks and expensive litigation. Make sure you use a good LLC member resolution template to cover all the crucial aspects of the resolution to ensure it’s binding in the court of law.
Also, after passing a resolution, the LLC should store it carefully and safely while keeping it easily accessible to members. To assure anywhere-anytime access, you can consider storing your resolutions on the cloud. We’ve compiled a list of the best cloud storage services that are user-friendly, secure, and accessible far from anywhere—provided you have a secure internet connection.