Sahil Kanaya

Bringing An Investor Onboard? Document Your Corporate Resolutions!

November 27, 2018

Delaware, a popular jurisdiction for incorporation in the United States, requires a majority of shareholders to pass a written resolution in lieu of a meeting in most shareholder-level decisions, and unanimous approval from a board of directors on board-level decisions. Corporate officers must act with the authority of directors, elected by shareholders, for each and every corporate act - but this seems superfluous in the case of a startup, where directors will simultaneously be shareholders and officers. Thus, rather than duplicate resolutions, the board may broadly authorize officers to take corporate actions without specifically documenting those actions. Though this may seem functionally redundant if the shareholders and directors and officers are all the same people, if you’re keeping to the letter of the law, every major corporate action must be authorized by the board.Sometimes companies fail to pre-authorize corporate acts through their boards, but Delaware has a mechanism to fix that. Delaware allows you to create a corrective resolution in case a number of corporate actions were not documented beforehand. Section 204 of the Delaware General Corporation Law (DGCL) allows the board to “ratify” acts that weren’t previously authorized in a retroactive resolution containing:

  • The “defective” corporate acts (i.e., that unauthorized acts);
  • The date of each defective corporate act;
  • The nature of the failure to authorize the defective acts; and
  • A statement that the Board ratifies the defective acts.

Aside from legal compliance, documenting your resolutions well can be a huge point in your favour as you attempt to bring a big investor onboard. Having a clear trail of resolutions to document prior, smaller investment rounds can assist in clarity for the investor and yourself as you negotiate a share purchase.Looking to learn more about incorporating in Delaware? Check out Clausehound’s Delaware Public Benefit Corporation By-Laws learning library template, and be sure to click through our tags to learn more about each clause!

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Written by Sahil. As Lead Content Analyst at Clausehound, Sahil puts his passion for research and writing, and his Law and Business major to good use developing easy to understand blog content and other eLearning materials for entrepreneurs, law students, and business students alike.