A shareholders agreement governs the shareholders, their business relationship with each other, and the operation of the company by the directors. Since a shareholder may not necessarily be interested in running the company, the Shareholders Agreement is an important document for the company to clearly set out how it expects business operations to be run and regulate the board meetings of the directors. A business lawyer should be consulted in case your company is considering using a shareholders agreement.
What does a shareholders’ agreement say about board meetings?
In regards to board meetings, a well-drafted shareholders agreement will cover the following matters:
- How often will the board meet? The usual minimum requirement is for the board to meet quarterly with the shareholders’ agreement stating that board meetings can be conducted more regularly if needed.
- Who can call for a board meeting and how? Normally, a director, giving reasonable notice to each other director of the company, may call a board meeting.
- What is the maximum number of directors on the board? To allow for future growth, it is generally recommended that this be higher.
- How many directors are required for quorum? The quorum is the minimum number of directors required to hold a meeting. For example, if you have 2 directors, then it would be reasonable to require both directors to be present to reach quorum. However, if you have 10 directors, then the company may require only 6 or 7 directors to be in attendance to reach quorum, as it may not be realistic to have all 10 directors at each board meeting.
- Can the directors meet remotely? Given today’s technological developments, it is quite common for shareholders’ agreements to explicitly state that board meetings may be conducted via phone or video communication. This will help to ensure that quorum is met.
- How will decisions be made at board meetings? Decisions are generally determined by voting, and each director has 1 vote. Most decisions can be passed by simple majority e.g. with 51% of the directors agreeing to a decision. For more important decisions, e.g. the company entering into a large loan amount, it may be required for the directors to reach a higher majority such as 75% majority or even a unanimous vote.
- Will the chair have a casting vote? Allowing the chair of a board meeting to have a casting vote means that the chair has an extra vote. This is a good way to break deadlocks where there are an equal number of directors. However, it is important to note that this gives considerable power to the chair of the meeting as he or she essentially has the final say.
Board meetings are an important part of running a company and it is essential to set out rules for board meetings to provide guidance to the directors of the company, and to ensure that your business is able to operate smoothly with minimal conflict. If you have any questions relating to the directors of your company or the drafting of a shareholders agreement, you should speak with a business lawyer.
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