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Unlike corporations and other business entities, LLCs aren’t legally required to document certain business decisions. However, documenting decisions made between members can protect your LLC and help you avoid expensive 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 teach you everything you need to know about LLC member resolutions so you can get on the same page with the rest of the LLC owners and formally document 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. Assuming the vote passed, the resolution would serve as a record if another member claimed the sale wasn’t properly approved.
Let’s take a closer look at the core components of LLC member resolutions. The following section will break down the rules for member solutions, what the document should include, examples, and more.
Before we dive deeper into LLC member resolutions, we first need to discuss articles of organization and operating agreements. These documents should be drafted when you initially form your LLC, and they’ll ultimately define the rules and voting procedures for all LLC resolutions.
The articles of organization will include all members, management structure, and other essential information about the LLC.
Your operating agreement will take this information one step further and include details on the day-to-day operation of the business. It also contains the percentage of member ownership, voting rights, responsibilities, powers, duties, buy-and-sell rules, meeting procedures, and more.
The operating agreement could even contain scenarios where a resolution could be used.
Even if things like which members have authority to take specific actions are clearly outlined in an operating agreement, LLC member resolutions can still be useful for unforeseen circumstances.
In terms of voting rights and power during a resolution, you should defer to the operating agreement and articles of organization.
For example, let’s say you have an LLC with five members. When the proposed resolution comes to a vote, is each member’s vote weighted equally? Your operating agreement might say that votes are based on ownership share, which would give more voting power to members who own more stake in the company.
Member resolutions aren’t necessary for basic day-to-day operational actions. For the most part, LLC resolutions are only used for crucial decisions, often carrying a significant financial risk.
Taking a client out to lunch or buying snacks for the employee break room wouldn’t qualify for a resolution. LLC members typically have the authority to do things like this without checking with the other owners. Any discrepancies should be clearly outlined in the operating agreement.
But here are some common scenarios where an LLC member resolution might be necessary:
In short, LLC member resolutions can be used for any big 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 previously mentioned, the exact process for a member resolution will vary for each company. Your operating agreement defines meeting procedures. But generally speaking, here’s a quick overview of how this process works.
Any LLC member can propose a resolution. But all members must cast a vote on the proposal.
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. Again, this would all be outlined in the operating agreement before the meeting.
If the proposal gets a “yes” from enough members, the resolution is passed. Then the members will sign the document to formalize the vote.
For obvious reasons, LLC resolutions are far more common in LLCs with multiple members. They help prevent disputes and disagreements if a member’s memory gets a little hazy about a decision made in the past.
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. Your records could also be useful if you have a dispute with an employee or manager within the company or even an outside vendor or business partner. In this case, the resolution is less about passing a decision and more about formal documentation of an action.
Additionally, some third parties might require an LLC resolution to clarify authority, even for single-member LLCs. Some business transactions or even bank loans could require this.
Most LLC member resolutions are fairly straightforward. The entire resolution can usually be consolidated to a single-page document that includes the following:
It helps to follow an LLC member resolution template as you’re going through this process. We’ll discuss templates in greater detail as we continue through this guide.
As people who have been through LLC member resolutions in the past, we want to share some quick tips and actions you can take right now to simplify this process. The following best practices are perfect for beginners.
Since member resolutions aren’t legally required, it can be tough to properly document the meeting and vote on your own. The last thing you want is to omit any important information that could essentially void the resolution, making it useless.
Fortunately, there are tons of great LLC member resolution templates that you can find online. We’d recommend starting with the resources listed above, but feel free to use any template you see fit.
You could also consult with your business attorney and ask them for a template that they recommend. But in most cases, the templates we covered in this guide will be adequate.
What happens after the resolution?
Your LLC will take whatever action gets passed during the vote. But if there’s a dispute or problem one, two, three, or even five years down the road, you want to make sure that the resolution is easily accessible.
We recommend storing your LLC resolution in a safe place with all other important business documents. You can keep it with your operating agreement, articles of organization, amendments, tax records, and more. Keep a physical copy as well as a digital copy stored safely in the cloud.
If your LLC has an even number of members, you could run into a tie scenario during a resolution vote. To avoid deadlocks, you should be proactive and have a procedure in place to deal with this scenario.
Voting deadlock stipulations should be included in your operating agreement. This will help you avoid costly litigation, mediation and prevent operational delays.
For example, you could have an external group or individual with authority to break the tie. This should be a neutral party who is familiar with the business and industry.
You could also rotate tie-breakers amongst members. In this scenario, one member would cast the deciding vote in the event of a deadlock. During the next deadlock, another member would have the authority to decide, and so on.
If you can’t handle this internally, you’ll likely be forced into mediation, arbitration, or other methods. In extreme scenarios, injunctions, judicial dissolutions, or judicial expulsions could be ordered. But you can avoid this by having a simple plan in place to break the tie.
Now that you have a firm grasp on LLC member resolutions and how to use them, there are a couple of other considerations that you should evaluate.
As mentioned above, LLC member resolutions are useless if you can’t access them in the event of a dispute. Check out our guide on the best cloud storage services for your business. This will make it easy for you to safely store your resolutions and other important business documents.
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Quick Sprout publishes original work by writers in the B2B space. All reviews are edited and fact-checked internally before publication. We will never gate an article or ask our readers to pay for our content.
