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A corporation or LLC is one of the most popular ways of 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 is especially true of paperwork, where LLC owners do not have to deal with an endless list of application requirements.
Sometimes, though, it can still be helpful to document decisions made between members, and this is where LLC member resolutions come into play. Read more as we explain the LLC membership rules 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 members. Having written evidence of decisions helps to avoid disputes and misunderstandings between members.
This does not have to be a complicated document, and should instead contain only necessary information. Below is a list of some common situations where LLC members are advised to make decisions:
When an LLC member makes a decision regarding the organization of the company When members must prove their authority to sign a loan on behalf of LLCWhen LLC decides to buy or sell real estate and wants to document the property and the sale price When a member must establish their authority to open a bank account on behalf of LLC
Any LLC member can propose a new resolution, but it requires a majority to be approved.
For example, 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 of all members. If the decision gets the majority and votes, the LLC member resolution will be proof if another member claims that the purchase of the land was not properly approved.
How do you survive LLC membership resolutions?
As mentioned, any LLC member can propose a resolution, but all members must vote on it.
The majority of LLC members must vote for the resolution to pass it, but each LLC may have its own voting rules. Some LLCs may e.g. Assign different values to different member votes. For example, a specific LLC member may have a greater influence on the voting process based on their percentage of interest in the company.
The LLC may adopt the resolution if it receives a confirmatory vote from the required number of members. All members who approved the decision will then sign the document and make it an official record. On the other hand, members who did not agree with the resolution do not have to sign it, but they have to accept the resolution since it won the majority.
Once all is done, keep the decision at the primary place of business registered for your LLC. Normally, all tax records and other official documents are kept.
Quick tips for LLC membership resolutions
As mentioned, LLC membership resolutions do not have to be complicated. Here are some additional tips to help simplify the process further.
Stick to one-page resolution documents
Many people have the impression that LLC membership resolutions need to be unbearably detailed. They do not.
Consolidating the entire resolution of a document on one page is much more preferable, which includes the following:
LLC name Date and time of the meeting Title and description of the proposal, including new contract, loan, distribution of profits, etc. Names of members who voted to approve the decision Names of members who voted to oppose the decision Approval and adoption of the decision Signed and dated signatures of each member
Use an LLC member resolution template
The whole purpose behind the preparation of a template is to simplify the current task and the user’s life. So it is not surprising that an LLC member resolution template serves the same purpose.
Templates can also be helpful in ensuring that you do not omit important information when documenting a decision, which may invalidate the decision.
The good news is that there are a seemingly infinite number of LLC member resolution templates available online. While you can use any template you find appropriate, just make sure they come from a reputable site.
Another option is to consult with your business attorney and ask them for an LLC resolution resolution resolution (if they have one).
Sign up for an online legal service
You will find a wide range of online tools that can help you with LLC membership resolutions, making your life even easier.
Out of all the possibilities, Rocket Lawyer is our favorite. This service asks you some questions, e.g. Your company name, the resolution adopted, the members involved and other relevant information based on a company resolution template. Then it automatically fills the document on your behalf and removes any unnecessary burden from your shoulders.
Rocket Lawyer also supports digital signatures so members can sign required documents online.
LegalZoom is another excellent alternative that has created over two million operating agreements for various LLCs. You can use the service to make sure things go smoothly when a solution arises.
Plan how to manage a tie
Your LLC can have an equal number of members, which means you can have a tie scenario during a ballot. To avoid problems or blockages, you should have a procedure in place to deal with this.
We recommend having voting provisions mentioned in your operating agreement to avoid costly litigation, mediation and of course prevent operational delays. It is best to deal with voting issues internally.
All you need is a simple plan to break the tie and avoid extreme scenarios. For example, you can pull a neutral, third-party person or group who is familiar with business and the industry to break the tie.
The second option is to rotate tie-breakers among existing members. You can get a member to cast the decisive vote in case of a stalemate, and then another member can get the authority during the following stalemate, and so on.
Long-term strategies for LLC member resolutions
Now let’s discuss the more strategic tricks that can help you deal with LLC membership resolutions.
Familiarize yourself with Single-Member LLC Resolution Vs. Multi-Member LLC Resolutions
LLC resolutions are understandably more common in multi-member LLCs. But that does not mean you can not create a resolution for your single-member LLC.
First, it is a good habit to document important decisions and actions that affect your business. These records can be useful when you have a dispute with an employee or a manager in the company or even an external creditor or business partner.
It is best to think of the decision as formal documentation of action rather than simply adopting a decision.
Second, LLC resolutions can help clarify authority — even for individual member LLCs. Many banks and financial institutions require this for business transactions or loans.
Understand the correct scenarios for documentation
Adopting LLC membership resolutions should not be a daily matter and is only for crucial decisions, especially those that carry significant financial risk.
You should understand the difference between the two scenarios above.
Giving an employee a week off from work, for example, is not eligible for a solution. However, if you were to sell a property owned by an LLC or hire a new CEO, you would need to document that and seek a vote.
Modifying profit distributions, concluding new contracts, and adding, removing, or transferring membership rights are crucial decisions that require an LLC membership resolution. All decisions regarding a new bank account or application for a loan should also be backed by a decision as both actions have significant financial consequences.
Let us discuss the above scenarios in more detail.
When partners change their distribution ratio: Assume that a member wants to take a more significant percentage of the profits away from the company’s working capital. If the member wants this change for only one financial year, it is not necessary to change the LLC’s operating agreement. Instead, all LLC members can vote on it and record the decision in a decision on how distributions will be handled. In the next year, the profit distribution percentage may return to normal. When LLC enters into a new contract: For obvious reasons, all contracts involving a significant investment or risk should be passed and documented with a decision. This also includes getting a long-term consulting firm to sell properties and enter into new business partnerships. Addition, removal or transfer of membership rights: Everything related to members and their rights must be in the resolution. In addition, you should also make provisions for unforeseen circumstances, such as the death of a member. If you do not have a clause on these situations in your operating agreement, your LLC must by default comply with state guidelines. This should again be backed up with an LLC member resolution.
Save your records securely
Assuming your decision is adopted, your LLC will take the designated approach. However, there is still a possibility of a dispute or a problem year along the way, and therefore you want the resolution to be readily available to avoid misunderstandings and lawsuits.
With this in mind, you should keep your LLC membership resolution in a safe place along with other important business documents, such as your operating agreement, organizational records, and tax records. Even better if you can create a digital copy in addition to the physical copy where the former is securely stored in the cloud.
Hopefully now you should have a better idea of LLC membership resolutions and how to use them.
The main purpose of maintaining the document is to present evidence in the event of disputes or opposition between members, ensuring that the LLC remains protected from operational bottlenecks and costly litigation. Be sure to use a good LLC resolution template to cover all the crucial aspects of the decision to ensure that it is binding on the court.
After adopting a resolution, the LLC should also keep it carefully and securely while being easily accessible to members. To ensure access anywhere and anytime, consider saving your resolutions to the cloud. We have 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.