With a limited liability company (LLC), members regularly need to vote on specific actions or decisions. Following each vote, it’s important to draft a resolution documenting the outcome of the vote and outlining the chosen course of action.
This is not legally required, but such records can be crucial in future disputes and disagreements. Read on to learn about LLC resolutions and how they can help your business.
The Operating Agreement
An operating agreement is not required in most states, but it’s a crucial document that defines members’ ownership percentages and how profits and losses will be distributed.
It also details the voting rights of members and voting procedures when a crucial decision must be made. In addition, it should include the following:
- Each member’s rights and responsibilities
- Management structure and roles of members
- Rules for meetings and voting
- What happens when a member sells their interest, becomes disabled, or dies
- How disputes between members are resolved
If your business has multiple members and thus needs to vote on resolutions, you should consider having an attorney draw up your operating agreement. An attorney will ensure that all bases are covered and all members’ rights are protected.
Lawyers will also incorporate language specific to your state’s laws. This could cost anywhere from $500 to $2,500, but expert guidance is often worth it.
Any member of the LLC can propose, and then all members must vote on it, following the voting rights and procedure stated in the operating agreement.
The resolution document that details the outcome of the vote should include a title, a description of the actions to be taken, and the signatures of all members who voted in favor of that course of action.
Members who voted against the motion need not sign the document, but the terms of the resolution bind them.
Sometimes, an outside party may request to see the LLC’s resolution. For example, if a non-member manager is authorized to conduct bank transactions, the bank may need to know the resolution that documents this authorization.
Actions That May Lead to Resolutions
Any major decision or action taken on behalf of the LLC should have a resolution. Examples include:
- Opening a bank account or obtaining financing
- Raising capital from investors
- Making a large purchase
- Granting authority to a manager or member to perform certain duties
- Entering into contracts
- Approving profit distributions
- Adding new members
- Approving additional capital contributions to the LLC
- Transferring membership
- Adding or removing managers
If a Tie Vote Occurs
If you have an even number of members, your operating agreement needs to specify what happens in the event of a tie vote. Votes do not need to have equal weight. For example, more weight may be given to votes by the members most involved in day-to-day operations or the member who made the largest capital contribution.
Alternatively, you can designate one member to have the deciding vote or choose a third party, such as an advisor, to make the deciding vote. If your operating agreement has specifications for what happens when a tie occurs, you and other members will have to negotiate a solution at that moment.
The worst-case scenario is an impasse that ends up in court. This is one of the reasons a detailed operating agreement is crucial.
Good LLC record-keeping, which includes resolutions, is critical to your business’s smooth, continued operations. You might think that disputes will never arise, but they do, and precise records, establishing agreements, and votes, are often the best way to resolve them.
If your LLC still needs to have a well-crafted operating agreement in place, you should draft one immediately, preferably with the help of an attorney. It’s the best way to protect all members’ rights and keep your LLC on the path to success.