Resolved! Best Practices for Board Resolutions

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How does a nonprofit organization act?  Why through its leaders, of course.  But they do not – or at least should not – act without the board’s official approval on major decisions.  In other words, the directors collectively “resolve” through their board – as the governing body – that the nonprofit shall take certain action.  What do such resolutions look like, and where can they be found?

Time for a Board Meeting – and Minutes Too

A nonprofit’s board may call a meeting of its directors, with notice given in accordance with its bylaws and state law.  Enough directors attend to constitute a quorum, as per the bylaws, and they then address various items per a prescribed agenda (preferably provided in advance).  A director may make a motion on a matter discussed, followed by a “second” and then board discussion.  After board deliberations, and possibly an amendment or two to the original motion, the directors may vote on the motion.  If the motion is passed, the result is a “resolution.”

How do these actions get memorialized in the board meeting minutes?  The minutes could look like this:

The Secretary recognizes that a quorum exists sufficient to conduct board business. . . .  Joe Director presented a proposal for “X.”  Board discussion ensued.  Susan Director made a motion to approve “X,” which was seconded by John Director.  After due deliberation, the motion was approved by unanimous vote of all directors present, as the resolution of the board.

The approved motion should be specifically stated in express terms (e.g., “to hire Billy to reroof the entire building, based on the attached bid reflecting a price of $15,000”). It may also be helpful to set forth a list of approved resolutions at the end of board meeting minutes, particularly if the meeting is long, the minutes are extensive, or several board resolutions are approved in one meeting.

If there are any conflicts of interest to resolve, such information should also be recorded in the minutes.  (E.g., “In accordance with the organization’s conflict of interest policy, Joe Director excused himself from the deliberations and the vote on whether to hire his brother Jimmy to cater the upcoming fundraiser event.”)  Likewise, decisions calling for due diligence investigation (e.g., whether to buy or sell real estate, and at a certain price) should reflect some level of due diligence within the minutes.  (E.g., “The Board heard extensive information from Peter and Paul about how expensive the property expenses are and why selling the property would be economically advantageous, including the high level of taxes and condominium assessments.”)

Using a Separate Corporate Resolution

In addition, it is occasionally advisable to use a separately prepared corporate resolution. Such a resolution typically involves at least one of the following elements: (a) some level of complexity and correspondingly detailed explanation (such as conflicts and due diligence information, as per above); (b) a need for separate documentation, such as to provide property information to a title company, a housing allowance to a pastor for tax purposes, or a change of bank signatory for a bank; or (c) the need for continued board reference, such as for a standing resolution reflecting short or long-term organizational policy.

A separate corporate resolution should contain the organization’s secretary’s certification that the board approved the resolution, as well as the date of such approval.  The meeting minutes should also refer to the separate resolution (e.g., “the board approves the separate resolution for “X,” which is attached hereto as Attachment 1”).

Using Written Consents (Without a Meeting)

Under most state laws, nonprofit board may approve a resolution through written consent, without holding a board meeting.  In Illinois and South Carolina, these actions require the unanimous agreement of the directors.  In other states, the statute is more flexible.  To act by consent, a board leader should circulate a proposed resolution for each director’s approval.  Each director then emails, faxes, or mails his/her consent to the Secretary.  Upon receipt of all the consents, the action is generally effective.  The Board may also make the resolution effective at a later date such as for an election, staff hire, or board resignation. 

Written consents are often quite helpful for noncontroversial matters.  For example, a board may have already hashed out whether to enter a contract for services and have decided to hire a certain person and pay him $10,000. If the putative contractor were to come back and ask for $10,500, presumably the $500 increase would be sufficiently noncontroversial that it could be approved by unanimous written consent of all voting directors, without another meeting. 

Note that a “hybrid” approach is generally not legally allowed, in which some directors attend a meeting to vote and other directors vote in writing.  The board approval choice is binary:  either the board votes to approve a resolution at a board meeting with a quorum; or unanimous written consent is obtained from all directors eligible to vote, via a circulated proposed resolution.

Ratification

A variation on the above two options for official nonprofit action, albeit a less favorable one, is a board resolution ratifying an individual’s action as that of the organization.  In other words, individuals sometimes seem to have the nonprofit’s authority to take certain actions, but they do not – not yet, at least.  They may sign contracts, make statements, or otherwise appear to be acting on the nonprofit’s behalf.  To the outside world, such action may be legally sufficient under the legal principle of “apparent authority.” 

But internally within the organization, the person so acting should obtain the board’s approval – if not before, then at some point in the future.  When the board approves the person’s prior action, such approval should be reflected in the board meeting minutes as a resolution “ratifying” whatever the person has already done.  And then it’s official!

Wrapping Up

Regardless of the tool used for taking official board action, remember to document board meetings well through minutes, keep track of corporate resolutions, and know how your nonprofit’s bylaws address related critical matters of notice, quorum, and voting requirements. 

Minutes and resolutions serve as the official record of the nonprofit’s actions and decision-making.  They thus often serve as the primary documentation for legal compliance in IRS audits, attorney general investigations, board conflicts, and litigation.  For this reason, a conscientious board secretary is a joy to behold.  He or she need not write tomes of board minutes.  Rather, the secretary’s minutes should concisely and clearly set forth the board’s matters addressed and resulting approved resolutions, sometimes by separate documentation and occasionally after the fact, along with related information such as highlights (only!) of board discussions, how any conflicts of interest were addressed, and due diligence measures ensuring that the organization’s best interests are served.