What is a Banking Resolution?
Opening a company bank account for your LLC is an important step in starting a business. Adopting a banking resolution document (sometimes called a corporate banking resolution) is a key step in the process of accomplishing this.
What is a Banking Resolution?
A banking resolution is a document that is used to formally authorize the opening of a company bank account. The banking resolution is drafted and adopted by the LLC members to define the roles, obligations, and privileges of each member with respect to banking activities for the company. The document is used to prove this authority to financial institutions.
What entities need a Banking Resolution?
While banking resolutions are required for corporations (both for-profit and nonprofit), these resolutions are not a legal requirement for LLCs. However, there may be specific language in the Operating Agreement that makes an official resolution necessary. The Operating Agreement lays out all the rules for governing the LLC, so depending on the procedures stipulated, a banking resolution may be needed to open a bank account on behalf of the company.
Why is a Banking Resolution necessary?
A banking resolution can be helpful when an LLC member is required to establish their authority to open a business bank account on behalf of the LLC. This document is also helpful if a member needs to prove their authority later to sign a loan on behalf of the LLC or make other purchasing decisions.
What should a Banking Resolution contain?
A banking resolution usually contains the name and address of the LLC, exactly as filed with and approved by the state. The document will also need to list the legal names of all employees and officers who are authorized to make transactions through the company account, including authorizing and depositing checks and borrowing money on behalf of the LLC.
The resolution will also need to provide the date (and often, location) of the meeting when the resolution was adopted as well as the certifying signature(s) of the members.
How do I adopt a resolution?
An LLC is fully vested with the authority to pass resolutions immediately after formation and continuing as long as the LLC is allowed to conduct business in the state in which it was formed. Usually, a resolution is voted on after the first meeting of the members.
However, LLCs are best served to maintain their liability protection qualities by complying with their own Operating Agreement (corporations use the bylaws). Subject to other formalities in the LLC’s Operating Agreement, a resolution is typically subject to the approval of the members either with or without a formal meeting. The voting formula determines what percentage of agreed votes qualify as a passing vote. This should be established in the Operating Agreement.
Upon a passing vote, all LLC members who voted in favor of a resolution usually sign the document. Although members who voted against the resolution are not required to sign, they are still bound to the decision while they remain members. The best practice is to record the minutes of the meeting where this vote takes place.