Corporate Resolution
When you form a business entity, the business entity documents decisions of the business entity by following its internal rules, having a meeting, voting on a proposed action and the result of that vote is reflected in a written resolution. The resolution should be retained in the company's business entity book.
Every day decisions of the business do not require a meeting and vote of the owners. Important decisions that require the approval of the owners of the business entity will require a meeting, vote and resolution approving the company action. The business entities organizational documents will spell out what actions need the approval of the owners and whether a simply majority is enough to authorize the action. Common actions requiring a resolution of the company would be borrowing money, purchasing or leasing real property, authorization of who can bind the company in contracts or for a specific transaction.
When in doubt, it is always a good idea to err on the side of having a meeting, vote followed by a resolution.
In too many instances, the owners of the business entity do not follow these rules and act on behalf of the business entity without the required legal authorization. By failing to follow the business entities company formalities, the owner/s create a risk that their activity was unauthorized and that they have failed to treat the business entity as a separate entity and, therefore, lose the business entity protection for the owners.
For instance, if an owner of a business signs a contract on behalf of the company but never obtained the legal authorization to bind the company to that contract, that owner may be found to be personally liable on that contract.