The day to day management and operation of a business is the responsibility of the directors in a company. In a proprietary (or private) company, the Shareholders own the company and the directors are appointed by the shareholders.All of the directors collectively make up the company’s board. When decisions need to be made on behalf of the company, the directors must pass different kinds of board resolutions depending on the seriousness of the decision. This article gives you a comprehensive look at these resolutions and how they work.

Who Can Make A Resolution?

Before a company can make a decision on a matter, it needs to know whether the issue is something that needs to be considered by the board of directors or by the shareholders. The company’s constitution and the shareholders agreement should be able to give you guidance on this matter, and it’s, therefore, important you carefully consider the kinds of issues that require voting through a resolution when drafting these documents. The Corporations Act 2001 (Cth) sets out the specific matters that require certain types of resolutions, such as the requirement that a special resolution is passed (with at least 75% of the votes) to change the name of the company (s157(1)). Make yourself familiar with the kinds of resolutions required by Corporations Act for certain matters and how they might apply to your business.

What is a Board Resolution?

A board resolution or a directors resolution is a formal decision of the directors of a company. You must follow all the procedural requirements before, during and after a board meeting for a decision to be effective.  

Where is a Board Resolution Decided?

A board resolution is passed at a board meeting. Generally speaking, the board will meet at least once a year to vote on important issues, although it is usually more often in practice. Any director may call a board meeting by giving reasonable notice of the meeting to every other director of the company. It is typical for the director calling a meeting to set out the agenda for the meeting so the other directors can prepare for the meeting. 

Provided that the board consents to a meeting, a board meeting may be held in person or using technology (including telephone, video or audiovisual communication such as Skype).  For a board meeting to be valid, a minimum number of directors will need to be present. This is known as a quorum. The directors may elect one of the directors to chair the meeting. The chair will be responsible for the smooth running of the board meeting and ensure they properly record all procedural matters. Depending on the company, the chair may also have a casting vote should an even number of directors for and against a particular matter be put before the board. The company’s constitution or shareholders’ agreement will normally set out the procedural matters required for an effective and valid board meeting.  

How is a Board Resolution Decided?

When deciding what matters are put before the board of directors, each director normally has one vote. For a matter to be passed by the board, it will be necessary to consider what type of resolution (or decision) needs to be used.

There are three different types of board resolutions:

Ordinary Resolution

An Ordinary Resolution is the agreement of just over half (50%) of the directors present at the board meeting. For example, if there are ten directors, you will need the agreement of at least six directors for the matter to be decided favourably.

Special Resolution

A Special Resolution is the agreement of more than half, usually 75% of the directors present at the meeting. This percentage is, of course, negotiable and will depend on the terms of the company’s constitution and shareholders’ agreement. For example, if there are ten directors, you will need to agree with at least eight directors for the matter to be passed through a special resolution.

Unanimous Resolution

A Unanimous Resolution is the agreement of all of the directors present at a board meeting.  That is 100% of the directors present will need to be in favour of the particular matter for it to be passed.  A straight 10 out of 10 of the directors eligible to vote – that would take a lot of convincing! The more directors that are required to vote one way, the harder the matter is to pass.

The terms of the company’s Constitution, Shareholders Agreement or the Corporations Act will determine what type of resolution is required based on your business, and the matter at hand. As a general guide, the day to day decisions involved in running the company, which require a board resolution, are passed by ordinary resolution. More serious matters, such as adopting or modifying a company’s constitution will require a special resolution. It is less common to see unanimous resolutions (as this could logistically be tough for a company to make any changes at all). However, an example of when a unanimous resolution is used may be in the event of winding up the company.

When is a Board Resolution Decided?

A board resolution is decided if the general requirements for the passing of resolutions under the Corporations Act have been satisfied. General requirements include:

  1. that the resolution is held at a properly convened board meeting with at least the minimum number of directors present to satisfy the quorum requirements;
  2. the resolutions passed by the directors are entered into the books kept by the company within one month of the directors meeting; and
  3. the nominated chair of the Board meeting must sign the board minutes at the meeting, which the resolution was passed or by the chair of the next board meeting.

If the company doesn’t comply with these procedural requirements, the resolution may not be valid.  It is, therefore, important that the company is aware of the requirements that apply.

Takeaways

If you would like more information on board meetings, passing resolutions, responsibilities of the chairman and the legal obligations of company directors have a look at some of our articles! If you’d like us to assist with drafting agreements, interpreting your company’s constitution or conducting board meetings, please get in touch with LegalVisions lawyers who would be happy to help.

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