Corporate Resolutions: The Foundation of Good Governance

What is a Corporate Resolution? 

A corporate resolution is a formal document that records major decisions a board of directors make on behalf of the organization. It serves as an official record of important company decisions and actions. It documents that proper procedures, in accordance with the company’s governing documents and relevant laws, were followed in making those decisions. 

Benefits of Resolutions

• Resolutions ensure all directors and shareholders are informed and in agreement on major decisions
• By clearly documenting decisions, resolutions reduce the chance of future disagreements about what was agreed
• They prove that individuals had proper authority to enter into agreements on behalf of the company
• They demonstrate that proper corporate governance procedures are being followed. 
• They provide a record of business decisions that shareholders can use to evaluate the board of directors' performance
• They help maintain the “corporate veil” that protects individual directors/shareholders from company liabilities
• They create a clear paper trail of decisions for auditors or other governmental organizations to determine legal compliance
• They may be required by banks, investors, or other third parties to verify actions 

Resolutions Required by the Companies Act 

The Companies Act 71 of 2008 (”Companies Act”) has certain decisions for which a resolution must be passed by either the shareholders, directors, or both.

• When incorporating the company and appointing initial directors
• Opening company bank accounts
• Taking on debt or outside investment
• Hiring key executives
• Entering into major contracts or leases
• Making changes to company ownership

Other Common Resolutions

Resolutions are usually drafted and passed any time an organization is making a significant decision that affects its structure, finances, or operations. Examples of this include:

• Approving major financial decisions like taking out loans or purchasing property
• Authorising individuals to act on behalf of the company 
• Appointing or removing directors and officers
• Issuing new shares or changing share classes
• Approving mergers, acquisitions or dissolution of the company

Drafting a Resolution

Board resolutions are legal documents and one should follow a structured process when drafting. They should include: 

• The title of the resolution which should indicate that it is a resolution and reference its purpose 
• A brief explanation of the purpose of the resolution and any background context why a resolution needed to be made 
• A concise resolution statement which states the action or decision in question
• All the actions the board agrees to take in respect of the decision 
• The time and location where the resolution was proposed and made should be included
• The date when the resolution becomes effective 
• Details of transactions or documents if referenced and  individuals who are authorized to act
• The results of votes on resolution. Note whether resolution unanimous 
• Authorizing signatures 

Words of Caution

• Resolutions should be drafted to be clear and unambiguous.
• Resolutions are to be documented in the official meeting minutes.
• Resolutions should be stored securely with other important company documents. 
• Before any resolution boards should ascertain whether or not they have the authority to take a particular action or if they require shareholder approval or if there are specific thresholds for the action. 
• Section 74 of the Companies Act sets out the requirements for resolutions by written consent (without a meeting) provided the company memorandum allows this. 
• Section 75 of the Companies Act sets out when and how disclosure of personal financial interest should be made.
• Dissenting directors should be encouraged to a written account of their dissent in a matter for the record

Conclusion 

Ensuring that board resolutions are clear, complete and legally compliant strengthens the board’s decision-making framework and protects the company and its directors from unnecessary risk. The quality of your board resolutions is as crucial as the decisions themselves.