As a limited liability company (LLC) owner, there are certain requirements you must meet to ensure your business is operating legally and ethically.
One such requirement is drafting and approving an LLC banking resolution. This resolution outlines the authority of the LLC to conduct banking transactions and sets limits on who can access the company’s funds.
In this definitive guide, we will cover everything you need to know about LLC banking resolutions, including why they are important, how to draft one, and what to include. Let’s dive in.
What is an LLC Banking Resolution?
An LLC banking resolution is a document that authorizes specific members or officers to handle banking transactions on behalf of the limited liability company (LLC). It outlines the company’s banking policies and procedures, such as opening and closing bank accounts, signing checks, and conducting wire transfers.
The resolution typically identifies the authorized members or officers who can conduct these transactions and specifies their level of authority. It also sets guidelines for how the LLC’s funds should be managed, including how payments should be made, how deposits should be handled, and how banking information should be stored and accessed.
Creating an LLC banking resolution helps to protect the company’s assets and ensures that all banking activities are carried out in compliance with state and federal laws. It also helps to prevent unauthorized transactions, as only authorized members or officers are allowed to conduct banking activities on behalf of the LLC.
Why is an LLC Banking Resolution Important?
An LLC banking resolution is important for several reasons.
First, it helps establish the LLC as a separate legal entity from its owners, which can protect personal assets in the event of a lawsuit or other legal action.
Second, it sets clear guidelines for who has access to the company’s funds and how those funds can be used. This can help prevent unauthorized transactions or misuse of company funds.
Additionally, having an LLC banking resolution can make it easier to manage the LLC’s finances by providing a clear framework for banking activities. It can also help ensure compliance with state and federal regulations governing LLCs and banking activities.
How to Draft an LLC Banking Resolution
Drafting an LLC banking resolution may seem daunting, but it’s actually a fairly straightforward process. Here are the steps to follow:
Step 1: Identify the LLC Members or Officers Authorized to Conduct Banking Transactions
The first step in drafting an LLC banking resolution is to identify which members or officers of the LLC will be authorized to conduct banking transactions. This typically includes the LLC’s managers or officers, but it can also include other members who have been granted specific authority to manage the LLC’s finances.
Step 2: Determine the Types of Transactions Authorized
Once you have identified who will be authorized to conduct banking transactions, you need to determine what types of transactions they are authorized to perform. This may include:
- Depositing and withdrawing funds
- Issuing checks or other payment instruments
- Transferring funds between accounts
- Applying for loans or lines of credit
- Opening and closing accounts
Step 3: Establish Limits on Transactions
To prevent unauthorized transactions or misuse of company funds, it’s important to establish limits on the transactions that are authorized. This may include limits on the dollar amount of transactions, the frequency of transactions, or the types of transactions that are allowed.
Step 4: Obtain Approval from the LLC Members
Once you have drafted the LLC banking resolution, you need to obtain approval from the LLC members. This typically involves scheduling a meeting or vote to approve the resolution. Make sure to provide all members with a copy of the resolution in advance of the meeting, so they have time to review it and ask any questions.
Step 5: Sign the Resolution
After the LLC members have approved the resolution, it should be signed by all members who are authorized to conduct banking transactions on behalf of the LLC. This helps ensure that everyone is aware of the policies and procedures outlined in the resolution and is committed to following them.
What to Include in an LLC Banking Resolution
Now that you know how to draft an LLC banking resolution, let’s take a closer look at what should be included in the document. Here are some key elements to consider:
- The purpose of the resolution: This should clearly state why the LLC is creating a banking resolution and what the goals of the resolution are.
- The authorized members or officers: The authorized members or officers are the individuals designated to conduct banking transactions on behalf of the LLC. They can include members, officers, managers, or any other representative with financial management authority. Defining them clearly in the resolution helps prevent confusion and unauthorized transactions.
- The resolution’s effective date: This should specify when the resolution will take effect and be in force.
- The types of banking transactions authorized: This should detail the types of transactions that the authorized members or officers are allowed to perform.
- Limits on banking transactions: This should outline the limits on the transactions authorized. This may include restrictions on the dollar amount, frequency, or types of transactions.
- Banking procedures: This should outline the procedures for conducting banking transactions, including who can approve transactions, how transactions are to be documented, and how funds are to be transferred between accounts.
- Record keeping: This should specify how the LLC will keep records of all banking transactions, including the types of records that will be kept and who will be responsible for maintaining them.
- Signature page: This should include a signature page where all members who are authorized to conduct banking transactions on behalf of the LLC can sign to indicate their agreement to the policies and procedures outlined in the resolution.
LLC banking resolutions may differ in content depending on the LLC’s needs and objectives. Some LLCs may have more comprehensive resolutions, while others may have more simplified versions. The essential aspect is to develop a document that outlines the company’s banking policies and authorizes particular members or officers to handle banking transactions on behalf of the LLC.
LLC Banking Resolution Best Practices
In addition to following the steps outlined above and including the key elements in your LLC banking resolution, there are some best practices that you should keep in mind. These include:
- Keep the resolution up to date: As the LLC’s banking needs and policies change, it’s important to update the resolution to reflect those changes. Make sure to review and update the resolution on a regular basis to ensure that it remains relevant and effective.
- Communicate the resolution to all members: Once the resolution has been approved and signed, make sure to communicate it to all members of the LLC. This helps ensure that everyone is aware of the policies and procedures outlined in the resolution and is committed to following them.
- Train authorized members: The members or officers who are authorized to conduct banking transactions should receive training on the LLC’s banking policies and procedures. This can help prevent mistakes and ensure that transactions are conducted in accordance with the resolution.
- Keep accurate records: Make sure to keep accurate records of all banking transactions conducted on behalf of the LLC. This can help prevent errors and provide a clear record of the LLC’s financial activities.
The LLC banking resolution is a crucial document that establishes the LLC’s banking policies and authorizes specific members or officers to conduct banking transactions on its behalf.
By adhering to the steps outlined in this guide and including the essential elements in your resolution, you can create a document that safeguards the LLC’s assets and ensures compliance with state and federal regulations.
It is vital to keep the resolution current, share it with all members, train authorized members, and maintain precise records of all banking transactions. Following these best practices will enable you to develop an effective LLC banking resolution that promotes lawful and ethical business practices.