What is a resolution to open a bank account for a nonprofit organization?

Definition & Meaning

A resolution to open a bank account for a nonprofit organization is a formal document that the board of directors adopts to authorize the establishment of a bank account. This resolution specifies the legal name of the nonprofit, the individuals who are authorized to manage the account, and the scope of their authority. It serves as an official record that the board has approved the account opening and outlines the responsibilities of those authorized to handle the organization's finances.

Key Elements of the Resolution

Several critical components must be included in the resolution to ensure it meets legal and banking requirements:

• Organization Information: The full legal name and address of the nonprofit organization must be stated clearly.
• Authorized Signatories: The resolution should list the names and titles of individuals authorized to operate the bank account, such as the Treasurer and Secretary.
• Scope of Authority: This section defines what banking activities the authorized individuals can perform, such as making deposits, writing checks, or withdrawing funds.
• Meeting Details: The date and location of the board meeting where the resolution was adopted should be documented.
• Signatures: The resolution must be signed by board members or officers to validate the document, often including the corporate secretary's signature.

How to Fill Out the Resolution

Filling out the resolution involves several steps:

• Gather Information: Collect the necessary details about the nonprofit, including its legal name, address, and the names of authorized individuals.
• Draft the Resolution: Use a template or format that includes all key elements, ensuring clarity and completeness.
• Review and Approve: Present the drafted resolution at a board meeting for discussion and approval. Make any necessary amendments based on feedback.
• Sign the Document: Obtain signatures from the board members or officers present at the meeting to authenticate the resolution.

Why a Resolution is Necessary

A resolution to open a bank account is essential for several reasons:

• Formal Authorization: It provides a documented decision from the board, confirming the organization's intent to engage in banking activities.
• Proof of Authority: The resolution serves as evidence to the bank of who is authorized to conduct transactions on behalf of the nonprofit, reducing the risk of fraud.
• Organizational Clarity: It helps define roles and responsibilities related to financial management within the organization, establishing accountability.
• Compliance: Having a formal resolution aids in meeting state and federal banking regulations, ensuring the organization operates within legal frameworks.

Examples of Using the Resolution

Practical examples of situations where a resolution is utilized include:

• Opening a New Account: When a nonprofit decides to start a new bank account to manage donations and operational funds, a resolution is required to authorize this action.
• Changing Authorized Signatories: If the board decides to update who can access the account, a new resolution is needed to reflect these changes.
• Applying for Loans: When seeking a loan, banks often require a resolution to confirm that the board has authorized the borrowing and identifies who can sign loan documents.

Legal Use of the Resolution

The resolution must adhere to legal standards to be valid. This includes:

• Compliance with State Laws: Each state may have specific requirements regarding nonprofit governance and banking, so the resolution should align with these regulations.
• Board Approval: The resolution must be formally approved in a board meeting, with minutes recorded to document the decision-making process.
• Retention of Records: The organization should keep a copy of the resolution in its records, as it may be needed for audits or compliance checks.

Who Typically Uses the Resolution

This resolution is primarily used by:

• Nonprofit Organizations: Any nonprofit entity looking to open or manage a bank account will need this formal resolution.
• Board of Directors: The governing body of the nonprofit is responsible for approving the resolution and ensuring compliance with organizational policies.
• Financial Officers: Individuals such as Treasurers or Finance Directors utilize the resolution to access and manage the bank account effectively.

Steps to Complete the Resolution

Completing the resolution involves a systematic approach:

• Schedule a Board Meeting: Arrange a meeting with board members to discuss the need for a bank account.
• Draft the Resolution: Prepare a draft that includes all necessary details and components.
• Present for Approval: Present the draft during the meeting, allowing time for discussion and amendments.
• Finalize and Sign: Once approved, finalize the document and collect signatures from the board members present.