8 Board Resolutions to Address While Establishing A Startup

Board resolutions are numerous issues to address as one creates and establishes a new company.

Addressing these issues early saves time and establishes the foundations for internal control within the company.

Furthermore, it also demonstrates to future investors a level of seriousness related to governance. By working on board resolutions, the effort will pay dividends to the company in the future during the due diligence process. The first four board resolutions below are typically included in formation documents such as the Operating Agreement of the LLC.

Concept Stage Startups: Investor Due Diligence List

If they are not included in these documents, here is how to establish a board resolution:

Appointment of a Manager
Appointment of a Tax Management Partner, (TMP)
Open a bank account
Establish roles and define compensation for participants

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The next four board resolutions deal with issues the company will encounter as operations commence and authorization authority. Moreover, addressing these as part of the legal documentation process establishes the appropriate foundation for the startup. This will also permit the business to focus on operations as the entity develops, instead of being distracted by administrative issues.

Finally, here are the authorizations necessary for the following topics:

Executing operations agreements and contracts
Buying or selling assets
Entering agreements to provide financing (equity and debt)
Executing employee benefits plans.

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Note: The author is not an attorney and FundingSage is not a law firm. FundingSage’s employees do not provide legal advice. We recommend that you seek the services of an attorney if legal advice is required.

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Alexa Cleek

Definitioner

LLC

Limited Liability Company

Human Relations

Operating Agreement

An agreement between the members of a Limited Liability Company, (LLC) which governs the LLC’s business including member powers, rights, duties and obligations, and outlining the decision making process related to operational, functional and financial issues in a structured manner. The operating agreement of LLC companies is similar to bylaws utilized by corporations.⁶

Startup

A startup is a new business venture / enterprise in its initial or early stages of development. These stages include the concept, seed, early, growth and mezzanine stages.⁶

Equity

Ownership in the capital of a Company. In corporations, it is called “stock”; in limited partnerships or LLCs, it is called “interests” or “units.”³
This designation is given to a stockholder’s ownership in a company. The amount of ownership is obtained when an individual or corporation purchases one or more shares of stock (equity shares). The more equity purchased, the greater the ownership.⁴

Due Diligence

A process undertaken by potential investors — individuals or institutions — to analyze and assess the desirability, value, and potential of an investment opportunity.³
This is the process whereby individuals or groups of people conduct independent investigations regarding a particular matter. In the business world, investors conduct timely due diligence when inquiring about prospective investment endeavors. This may entail a background search of the company’s founders, review of the entrepreneur’s credit scores, and routine follow-up with references and associates, etc. New business owners, on the other hand, are encouraged to also conduct due diligence when finding a potential investor. Through due diligence, both the investor and entrepreneur has the opportunity to diligently analyze and assess each other for the potential of an investment opportunity and partnership.⁴
Due diligence is the process of investigation and evaluation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.⁵

Debt

Any obligation by one person to pay another. May be a primary (direct) obligation as in a Note, or a secondary (contingent) obligation as in a guaranty.³
This is an amount of money that a borrower owes to an individual, investor, or lending institution. In the finance world, the word “debt” is often associated with interest payments. For example, when an individual has a credit card limit of $5,000, the lender, usually a bank, is willing to lend the credit card holder $5,000 of credit. If the lender uses $500 of that total amount, they are now considered to be in $500 debt until the total amount is paid. Partial payment of an owed amount always encompasses interest.⁴

Assets

This word refers to all financial resources that a corporation owns. Current assets can be any form of currency, including traded inventory, investments, and checks. Fixed assets (capital assets) consist of material goods and equipment of a company, such as the land by which the company sits on, the company building, and technological machinery. Intangible assets mainly comprise of intellectual property protection, copyrights, patents, etc.⁴

INFOGRAPHICS

INFOGRAPHICS

Addressing these issues early saves time and establishes the foundations for internal control within the company.

Alexa Cleek

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