Board decisions (also known as board resolutions) are legally binding decisions taken by the directors of a limited company.
They often result from a board meeting – but can also be passed as a written resolution (without a board meeting being held) if the articles of association permit this.
With Coronavirus making physical board meetings more difficult, being able to make board decisions remotely is more important than ever. We will take a look at how board resolutions can be passed without the need for holding physical meetings in offices.
How are board resolutions passed?
Board resolutions can either be made through board meetings or written resolutions:
1. Board meetings (collective decisions)
According to article 7 of the model articles of association: “The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.” Article 8 deals with written resolutions, which we will consider below.
Board meetings involve the company directors coming together and making any relevant decisions regarding the direction of the company. Board meetings should not be confused with general meetings, where the company shareholders can vote on ordinary and special resolutions.
There must be a quorum of directors present at a board meeting for any decisions to be effectively passed. A quorum is the minimum number of directors present at a board meeting – this is normally a minimum of two, except in instances where the company only has one director.
The general conduct of board meetings is regulated by the company’s articles of association, but section 248 of the Companies Act 2006 regarding keeping minutes always applies: “Every company must cause minutes of all proceedings at meetings of its directors to be recorded” which “must be kept for at least ten years from the date of the meeting.”
2. Written resolutions (unanimous decisions)
Article 8 of the model articles of association explains how a written resolution is made: “A decision of the directors is taken in accordance with this article when all eligible directors indicate to each other by any means that they share a common view on a matter.” It goes on to say “Such a decision may take the form of a resolution in writing, copies of which have been signed by each eligible director or to which each eligible director has otherwise indicated agreement in writing.”
A written resolution, therefore, provides an alternative way of passing board decisions, without the need to hold a meeting.
In companies where there is only one director, the sole director is not required to actually hold any meetings to make board resolutions, but any decisions they take must nevertheless be either recorded as minutes or as written resolutions.
Can board decisions be made remotely?
It is possible for board decisions to be made remotely, either through meetings or written resolutions:
1. Board meetings
Unless specifically required in bespoke articles of association, a meeting of the company directors does not need to take place in the form of the directors being present in a single physical location.
Indeed, model article 10 states: “In determining whether directors are participating in a directors’ meeting, it is irrelevant where any director is or how they communicate with each other” as long as “they can each communicate to the others any information or opinions they have on any particular item of the business of the meeting.” In other words, board meetings can normally be held remotely over the phone or using videoconferencing technology, etc.
Various forms of remote communication which can be used by directors to hold board meetings remotely (articles permitting) include:
- Voice calls – landline telephones and smartphones
- Videoconferencing – examples being, Skype, Zoom, Teams, Facetime, Hangouts, etc
- Collaboration software – there are various software tools for business that are geared towards remote collaboration of teams, often with specially designed interfaces for holding meetings (e.g. Microsoft Teams)
- Virtual reality (VR) – this is a technology that is still in developmental stages and needs a fast internet connection as well as the proper hardware (i.e. VR headset) but it can effectively recreate a board meeting in a virtual environment
- Instant messaging apps – WhatsApp, Facebook Messenger, Telegram, etc. can potentially be used, but the inability to hear the voice or see the face of other directors could potentially cause evidentiary problems or be more open to hacking
It will also be a good idea to use some kind of cloud based document sharing software (e.g. Google Docs or Microsoft Office 365) so that all the participants can see the meeting agenda, add notes and keep minutes.
Please note: Email is unlikely to be an effective way of holding a board meeting, although theoretically, it can work almost as well as instant messaging, as long as each person takes their turn to email to a group.
2. Written resolutions
As long as the articles of association allow for written resolutions to be taken by directors, it is possible to make board decisions without holding physical or virtual board meetings.
In this case, there must be a unanimous decision (as opposed to a majority decision for board meetings) for the decision to be adopted. Instead of recording the decision in minutes (as is done in a board meeting), the decision is recorded in the form of a written resolution, wherein each director signs and dates the resolution.
In the case of decisions that all directors are likely to approve and which do not generate much debate, it may be easier to make board decisions via written resolutions rather than through board meetings. As discussed above, it is sufficient that “all eligible directors indicate to each other by any means that they share a common view on a matter.” This can be done using any remote methods available, including email and SMS, etc. (although email is better as it provides an audit trail).
What if the articles of association do not allow board decisions to be made remotely?
If a company is using bespoke articles of association which do not permit written resolutions and require board meetings to be held in person (as opposed to remotely), then it will be necessary to change the articles to remove these restrictions.
To amend the company’s articles, a special resolution should be passed. This means that 75% of shareholders (by total voting rights of eligible members if done through a written resolution or a poll, or by a number of shareholders present if voting is by a show of hands) must agree to it.
A vote on a special resolution can either take place by holding a general meeting of the shareholders, or via a written resolution.
The resolution and amended articles should then be filed with Companies House within 15 days of the resolution being passed. Copies of the amended articles and special resolutions should be sent to every director and the company auditor (if applicable). The amended articles will take effect as soon as the special resolution has been passed.
Good practice tips for holding a remote board meeting
The Chartered Governance Institute (ICSA) has produced a useful guidance note for holding virtual board meetings. Some of the key points include:
- Choosing a communication channel – it is vital to select the optimal tool for holding a virtual meeting, whether this is a voice call or a form of videoconferencing. Appendix 5 lists some of the most popular virtual meeting software, such as Zoom, Skype, Microsoft Teams, etc. Also, consider the internet capability of each participant when deciding on a communication channel; if some of the directors live in a rural area with a slow broadband connection, it may be best to avoid video calls and just rely on voice.
- Structure and preparation – to ensure a virtual meeting run smoothly, it will often be necessary to do some groundwork beforehand, especially if some of the directors have not yet attended a virtual meeting. Instructions on logging in to the meeting and installing the necessary software should be provided in advance, and account should be taken of any time zone differences, etc. If a meeting agenda is being shared on a cloud platform, make sure that everyone has access to the document.
- Test calls – for any participants who are new to virtual meetings, it may be a good idea to offer individual ‘practice calls’ so that the technology is working OK for everyone, microphones and webcams are switched on, internet connection is fast enough, etc.
- Ground rules – whether these are laid out formally or informally, participants should know what is expected. Some of the considerations may range from wearing appropriate attire (e.g. avoid pyjamas if working from home) to muting microphones in noisy environments.
- Chair – it is particularly important for the person chairing the virtual meeting to be familiar with the technology being used. They should be extra vigilant that all the directors are able to fully participate and that technical glitches do not lead to any miscommunication, etc.
Another important consideration when holding virtual board meetings is cyber security. This is especially vital where any confidential information is being discussed, as malicious hackers often target corporations to steal trade secrets and other sensitive materials. To this end, it may be useful to circulate an IT security policy advising participants to only use secure WiFi connections, etc.