Just like Dorothy’s “lions and tigers and bears,” business records can come with a list of terms that sound more intimidating than they really are. Written consents, resolutions, and meeting minutes all help document company decisions, but they each serve a slightly different purpose. On this week’s Tuesday Tax Take, we are following the yellow brick road through these common business documents and breaking down what each one means and when it is used.
What Is a Written Consent?
A written consent is a document used to formally approve company actions without holding an actual meeting. Instead of the members or managers gathering together, discussing an issue, and voting at a meeting, the appropriate people approve the action by signing a written document. For example, when an LLC is first formed, an initial written consent might approve the operating agreement, admit the initial members, appoint a manager or officers, authorize the opening of a bank account, or approve other actions necessary to get the business up and running.
Written consents can also be used later in the life of the business to document significant decisions, such as approving a major contract, borrowing money, acquiring property, admitting a new owner, or approving the sale of the business. Whether a particular action can be approved by written consent, and who must sign it, depends on applicable law and the company's governing documents.
How is a Written Consent Like Meeting Minutes?
Written consents and meeting minutes serve a similar purpose: they create a formal record of company decisions. The key difference is how the decision was made. If the members or managers actually hold a meeting, the company may prepare meeting minutes documenting when the meeting occurred, who attended, and what actions were discussed and approved. If no meeting is held, the company may instead use a written consent to approve and document the action. In other words, meeting minutes document what happened at a meeting, while a written consent generally documents an action taken without a meeting. Both can become part of the company's permanent records and help establish that important actions were properly authorized.
What Are Resolutions?
A resolution is the formal statement of what the company is approving. For example, a document might state:
“RESOLVED, that the Manager of the Company is authorized to open a bank account with ABC Bank.”
Resolutions can appear in either written consents or meeting minutes. If a company acts by written consent, the consent may contain a series of resolutions approved by the members or managers. If the company holds a meeting, the minutes may record that a particular resolution was presented and approved.
That is why the terms “written consent” and “resolutions” are sometimes used together. The written consent is the method used to take the action, while the resolutions describe the actions being approved.
Why Does the Paperwork Matter?
For a small business, documenting formal decisions can sometimes feel unnecessary, particularly when the same person owns and manages the company. However, maintaining appropriate company records helps create a clear history of important decisions and who had authority to make them. Those records can become especially useful when the company applies for financing, brings in a new owner, enters into a significant transaction, undergoes due diligence, or is later asked to show that a particular action was properly authorized.
The Takeaway
Written consents, resolutions, and meeting minutes may sound a little intimidating at first, but there is no need to get lost somewhere over the rainbow. Each simply serves a different role in documenting company decisions. Meeting minutes record actions taken at a meeting, written consents allow actions to be formally approved without holding a meeting, and resolutions state the specific actions being approved. The exact procedures depend on the type of entity, applicable law, and the company's governing documents. But once you know what each document is doing, the path becomes a lot clearer.
This article is provided for general information purposes only and should not be construed as legal advice. Those requiring legal advice are encouraged to consult with their attorney.
