When starting a business, it is crucial to have the proper legal structures in place. Two key documents that are often used in this process are the corporate resolution and the operating agreement. While they may seem similar, they serve different purposes and understanding their differences is important.
A corporate resolution is a legal document that is used by a corporation to make decisions and authorize actions. It is often used to document decisions made by the board of directors or shareholders. Examples of decisions that may require a corporate resolution include opening a bank account, entering into a contract, or selling company assets. The document must be signed and dated by the individual(s) authorized to make the decision.
An operating agreement, on the other hand, is a legal document that outlines the structure and governance of a limited liability company (LLC). It typically includes information such as the roles and responsibilities of the members, how profits and losses will be allocated, and how the company will be managed. The operating agreement is not mandatory for an LLC, but it is highly recommended as it provides clarity and protection for all members involved.
Differences Between Corporate Resolution and Operating Agreement
While both documents serve a legal purpose, the corporate resolution and operating agreement differ in several key ways:
1. Purpose: The corporate resolution is used to document decisions made by a corporation, while the operating agreement outlines the structure and governance of an LLC.
2. Required by law: A corporate resolution is often required by law for certain decisions, while an operating agreement is not mandatory for an LLC.
3. Signatories: A corporate resolution must be signed by the individuals authorized to make the decision, while an operating agreement is signed by all members of the LLC.
4. Scope: A corporate resolution is limited to the specific decision being made, while an operating agreement covers the entire structure and governance of an LLC.
In conclusion, while both the corporate resolution and operating agreement serve a legal purpose, they differ in their purpose, legal requirements, signatories, and scope. It is important for businesses to understand these differences and ensure that both documents are utilized appropriately to protect the interests of all parties involved.