Although a company has a separate legal personality, it is not a sentient being and so it can only act through its directors. Generally, decisions by a board of directors must be reached collectively and the decision should be documented. Meetings are an important step in proving that the directors’ actions, and therefore the actions of the company, have been properly authorised and are valid.
The board meeting that never was
The importance of a properly convened board meeting was recently highlighted. Here transactions between a company and its majority shareholder were found to be ineffective as it could not be proved that a formal board meeting had taken place to authorise the transactions.
Although board minutes had been drafted by the company’s solicitors, they were then simply signed by the managing director. Despite his claim that he had conducted a board meeting at home with his wife, another director, oral testimony at court cast doubt on this.
However, even if a board meeting had been held with the director’s wife, the director would not have been able to cast a valid vote as he was personally interested in the relevant transaction. The company’s articles of association prevented him from counting in the meeting’s quorum or voting in that situation.
Board meeting procedure
Directors are empowered to exercise all the powers of a company. Usually, the exercise of these powers should be done at a properly convened board meeting. This ensures they are being exercised correctly as well as in the company’s best interests.
There is no legal requirement as to the number of board meetings that must be held. However, directors must meet often enough to ensure they are discharging their duties as directors. The conduct of board meetings is not prescribed by statute and so is governed mainly by the company’s articles of association.
Notice of meetings
A company’s articles will normally allow a director to call a meeting. If a meeting is called, notice must be given to all the directors. The articles may specify a required period of notice; however this is not common. The notice period must be fair and reasonable. What is reasonable will depend on the significance of the matter being considered at the meeting and what is common practice for the board.
It is important to remember that business that is done with some directors having no (or short) notice could be invalid.
Structure of meetings
Generally, the directors may appoint a director to chair the meeting and also have the power to terminate the chair’s appointment. The chair essentially exercises procedural control over the meeting, with responsibility for ensuring that there is a quorum present and that the relevant business is dealt with.
The quorum for a meeting refers to the minimum number of directors who must be present before any decisions can be made. Unless specified otherwise in the company’s articles of association, the quorum for a directors’ meeting is usually two directors. The quorum must remain present for the duration of the meeting.
Any resolutions put to the meeting are passed by a majority of those present and voting. The chair may have a casting vote, if this is provided for in the articles.
Every company is required by law to take minutes at all meetings of its directors. The minutes do not need to reflect everything that was said in strict detail but they should contain details of all decisions reached or resolutions passed along with the general thought process involved in reaching them. Once the board minutes have been authorised by the chair they are evidence of the business transacted and it can be difficult to prove that they are incorrect.
Directors should place on record, the effect of their deliberations and conclusions. If this is done insufficiently or inaccurately they cannot complain of any interpretation different to that which they believe to be right.
It is essential that the correct procedure is followed when convening and holding board meetings to ensure the company’s actions are valid. Check the articles of association and make sure you follow the required steps. Whilst the position set out in this blog represents the norm, articles could contain bespoke provisions that could catch you out.
This post was written by Zum Mohammed and Elliot Gibson. For further information, please contact:
Sophie Brookes, partner, Corporate