When it comes to corporate governance, any significant company decision needs to be documented and approved. That’s where a corporate resolution comes into play. A corporate resolution is the formal documentation of the company’s decision, duly authorized by its board of directors or shareholders, and is kept in the corporate records.
This blog explains what a corporate resolution is, why it is important, the various types of corporate resolutions, what goes into drafting a corporate resolution, and the legal obligations that are involved.
Introduction
Companies, regardless of being public or private, do not operate in an informal way. Businesses must authorize formal decisions, like opening bank accounts to approving mergers, in a formal manner.
A corporate resolution provides –
- Written evidence of the decision,
- Authorization for specific actions, and
- Protection for Directors and Officers from business decisions made under an authorized process.
If there is no resolution, banks, regulators, and even courts may do their best to undermine the actions taken on behalf of the company.
What is a Corporate Resolution?
A corporate resolution is the formal written statement adopted by the board of directors (or shareholders in some cases) that records an important decision. A corporate resolution becomes part of the company’s official file, often kept in the minute book.
A corporate resolution typically states:
- The date and location of the meeting.
- The business decision that was made (for example, opening a bank account, appointing a director, or approving an investment).
- The names of the individuals authorized to act on behalf of the company.
- Signatures of the corporate officers or directors who are authorized to sign.
What is the Importance of Corporate Resolutions?
Corporate resolutions are important documents, and have an important legal and administrative function –
- Evidence of authenticity – prove the decisions were made and signed off properly.
- Legal requirement – required by company law, regulators need this, and banks require this.
- Communication – they are a communication tool to eliminate ambiguity, misunderstanding or misinterpretation from management or the equity holders.
- Authority – they provide clarity on who can act on behalf of the company.
For example, a bank will not let a company open an account without a resolution approving that, along with the authorised signatories.
Types of Corporate Resolutions
Corporate resolutions can be divided into these broad classes-
1. Board Resolutions
- Passed by the board of directors.
- Decisions made here concern regular operational reflection and matter like borrowing money, entering a contracting, or appointing officers.
2. Shareholder Resolutions
- Authorized by shareholders at a convention.
- Often, big decisions will require a shareholder vote, such as amending the Articles of Association, going through with a sale, or issuing shares.
3. Ordinary Resolutions
- Passed with the simple majority (more than 50%).
- Examples include appointing directors or approving the annual accounts.
4. Special Resolutions
- Requires a supermajority (generally is required 75%).
- An example would be a change in company name, a change in the capital structure, or a wind-up of the company.
Common Situations That Require a Corporate Resolution.
- Opening or closing a bank account.
- Authorizing loans or credit facilities.
- Appointing or removing directors.
- Approving mergers, acquisitions or re-structuring.
- Issuing or buying back shares.
- Approving dividend declarations.
- Entering into large contracts.
- Changing registered office address.
How to Draft a Corporate Resolution?
While formats may vary, a typical corporate resolution includes:
- Heading – “Board Resolution” or “Shareholder Resolution.”
- Company Details – Name and CIN (Corporate Identification Number).
- Meeting Details – Date, time, and place.
- Statement of Decision – Clearly describing the decision.
- Authorization Clause – Identifying who is authorized to act.
- Signatures – Directors/Chairman/Authorized signatories.
Legal Requirements for Corporate Resolutions
- Companies Act, 2013 (India) outlines matters requiring board or shareholder resolution, and whether ordinary or special.
- Board meetings – Certain decisions can only be made at a properly convened board meeting on proper notice.
- Filing with ROC – Some resolutions (for example, special resolutions) must be filed with the Registrar of Companies, using prescribed forms MGT-7 or MGT-14.
- Retention of Records – All resolutions must be recorded in the minute book or a similar document for inspection.
Best Practice Standards for Corporate Resolutions
- Be clear and unambiguous.
- Comply with quorum and notice requirements.
- Record the resolution in the minutes within 30 days.
- File required resolutions with the Registrar of Companies in a timely manner.
- Maintain certified copies for bank, auditor and regulatory purposes.
Conclusion
A corporate resolution is the foundation of legitimate and open corporate decision-making. Whether it’s for the mundane activities of opening a bank account or for the major events such as mergers, resolutions are a record of authority and compliance.
For directors and business owners alike, writing a clear, compliant, and timely resolution helps them run their organisations on a day-to-day basis and remove potential legal issues.
References
The Companies Act of 2013 (Act No. 18 of 2013)
The Companies (Management and Administration) Rules, 2014
https://www.mca.gov.in/
