One forum to make formal decisions within a company are board meetings, where board directors assemble to take a joint decision, exercising their responsibility to manage the company. Meetings are typically held to decide on the company's performance, strategy, policies, any major transactions, or anything outside the scope of the company's normal activities. Although there is no statutory requirement to hold meetings at a specified frequency, from a corporate governance perspective, it makes sense to hold meetings regularly, at least quarterly to ensure formal decision making on these key topics. Board meetings also support the directors in following their duty to stay informed about the company's affairs.
Two key legal requirements for a joint decision are quorum and majority. Quorum is the minimum number of eligible directors that constitutes a valid meeting, and this number is set in the company's Articles of Association ("Articles"). To properly achieve quorum, directors must be granted adequate notice and information of a meeting. Sometimes specific notice periods are set out in the Articles but otherwise directors should decide what is considered "adequate" as this will vary from company to company. In emergencies, meetings can be held with shorter notice and can be conducted virtually – unless stated otherwise in the Articles. In the case of a sole director company and where the Articles provide for more than one director to hold a valid meeting, the shareholders must either appoint new directors to reach quorum or amend the company's Articles to provide for a sole director to form quorum.
The Articles also establish the majority by which a certain decision can be made. Beside quorum, this is also an important means of organising decision-making in the company. For certain decisions, the shareholders by the Articles or within a shareholder agreement may establish higher quorum and higher majority requirements, e.g., two thirds majority or even unanimity.
In order to adequately document key decisions, S.248 of the Companies Act 2006 requires all board meetings including sole director resolutions to be recorded as board minutes and kept for at least 10 years, serving as evidence of company proceedings. This is vital for the company's security in the event that a board decision is challenged for its validity, for example, if someone claims a decision was passed at an inquorate meeting or not passed at all. Depending on the circumstances, an improper meeting could legally invalidate a course of proceedings, therefore, it is imperative to seek advice before undertaking major business transactions.
Identifying and fulfilling the legal formalities surrounding company decisions can be a confusing process and getting it wrong could be detrimental. At Herrington-Carmichael, our devoted Corporate Governance/Company Secretarial department can guide you on every aspect of board meetings, from setting agendas to preparing legal documentation and advising on the implications of company decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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