What decisions can directors make without shareholder consent?
Directors and shareholders have different responsibilities in a company, although the same individuals often hold both positions simultaneously. Shareholders typically make company decisions only in exceptional circumstances, while the board of directors has the power to make most routine decisions without shareholder consent.
The rules on company decisions and directors’ powers are set out in the Companies Act 2006, the articles of association, and sometimes (where applicable):
- a private shareholders’ agreement
- directors’ service agreements or contracts of employment
- resolutions passed by the company shareholders
As a director, it’s essential to check all of these documents carefully to determine exactly which decisions you have the authority to make and which matters you must defer to the shareholders.
Decision-making by directors
Directors are responsible for managing a company’s day-to-day business on behalf of its shareholders (members) and for the benefit of the company. In performing their role, they must adhere to the seven general duties of directors as specified in the Companies Act 2006 (sections 171 to 177):
- Act in accordance with the powers granted by the company’s constitution (the articles of association) and exercise those powers only for their intended purposes.
- Seek to promote the success of the company for the benefit of its members as a whole.
- Exercise independent judgment.
- Exercise reasonable care, skill, and diligence.
- Avoid conflicts of interest.
- Not accept benefits from third parties.
- Declare any interests in proposed transactions or arrangements with the company.
The articles of association are a constitutional document that sets out the specific rules of the company, including the directors’ decision-making powers. Additionally, many companies draw up a private shareholders’ agreement to provide extra protection to members, outlining the level of authority directors have to make company decisions without shareholder consent.
Common types of company decisions that directors can make
Under the Model articles of association, which most new and smaller companies use, directors have the authority to make any decision not expressly prohibited by the articles, a shareholders’ agreement, their service or employment contracts, or resolutions of the members.
This means the board of directors usually has the power to make the following types of company decisions without shareholder consent:
- Day-to-day management decisions
- Matters relating to routine financial and accounting activities
- Choosing suppliers and accepting new clients
- Entering the company into legally binding contracts with third parties
- Strategic and operational decisions
- HR-related activities, including the appointment of new directors
- Implementing company-wide policies
- Approving share transfers
- Declaring interim dividends (those issued during the financial year, at any time between annual general meetings)
- Recommending final dividend amounts to be declared by shareholders (final dividends are those usually paid at the end of the financial year after the accounts have been approved)
- Authorising a change of registered office address
- Appointing a company secretary
- Engaging accounting and legal services for the company
- Appointing the company’s first auditor (or the first one after a period of audit exemption) and filling a casual vacancy for the role
On all such matters within their remit, the board must exercise their decision-making powers collectively. However, in areas where individual directors have particular expertise, they may have the authority to make certain decisions without consulting the rest of the board.
If you are the sole director of the company, you are responsible for making decisions relating to the company’s affairs on your own.
The decision-making procedure for directors
The board of directors must make company decisions at board meetings or through written resolutions, in accordance with the rules and procedures set out in the Companies Act 2006 and the articles of association.
As per the Model articles, the general rule is that directors can make decisions by a majority agreement (over 50%) at a board meeting or by unanimous agreement in writing. These types of formal decisions are known as ‘resolutions’.
- Are board meetings optional for private limited companies?
Written resolutions are becoming increasingly common due to their flexibility. It is often more convenient to make decisions this way rather than arranging and convening meetings.
However, for many company decisions, directors can greatly benefit from discussing, debating, and voting on proposed actions at board meetings, whether held in person or remotely.
The following information applies if your company has adopted the Model articles in their entirety. The rules may differ if your company has modified Model articles or bespoke articles, so be sure to check.
Decisions at board meetings
To vote on a proposed resolution at a board meeting, you must call the meeting by giving notice to all eligible directors. No statutory notice period is required, and it does not have to be in writing. However, the notice must indicate:
- The proposed date and time of the meeting
- Where it is taking place
- Means of communication during the meeting if the participating directors are not going to be in the same place (e.g., via video conferencing)
A quorum must be present for directors to vote on any proposed actions at the meeting. The required quorum is two, unless a higher number is specified in bespoke articles or by previous board resolution.
To vote on a proposed resolution at a board meeting, the directors can cast their votes by poll or a show of hands. If more than 50% of the directors vote in favour of the motion, the board resolution is passed, and the decision is legally binding.
Decisions by written resolution
A written resolution enables directors to vote on a proposed action in writing rather than at a meeting. However, this type of resolution can only be passed with unanimous agreement from all directors. This means that all directors eligible to vote must be in favour of the motion; otherwise, it cannot pass.
You can circulate written resolutions and voting instructions on paper, allowing each director to sign the document to indicate their agreement. Alternatively, you can distribute and vote on proposed written resolutions via electronic means, such as by email or on a website.
How to record directors’ decisions
If a board resolution is passed at a meeting, the decision must be recorded in writing in the meeting minutes. Keep a copy of these minutes, along with any written resolutions, for at least 10 years.
Which company decisions require shareholder consent?
Under the Companies Act 2006, significant decisions affecting a company are typically reserved for shareholders. However, unless specified otherwise in customized articles or a shareholders’ agreement, certain decisions require shareholder approval through ordinary or special resolutions:
Ordinary resolution:
- Removing a director from office
- Declaring final dividends within the amount recommended by directors
- Changing directors’ powers
- Approving substantial property transactions
- Authorizing the issuance of additional shares
- Approving a director’s loan
- Approving a director’s service contract exceeding two years
- Ratifying a director’s conduct amounting to negligence, default, breach of duty, or breach of trust
- Approving a share buyback from distributable profits
- Appointing auditors
Special resolution:
- Amending the company’s articles of association
- Changing the company name
- Reducing the company’s share capital
- Approving the redesignation of shares or creation of a new share class
- Disapplying shareholders’ pre-emption rights regarding share issues or transfers
- Purchasing own shares out of capital
- Approving company re-registration (e.g., from limited to unlimited or private to public)
Companies with customized articles of association may have different decision-making rules. For example, decisions requiring an ordinary resolution might need a special resolution, requiring a higher vote or unanimous consent. Some companies limit directors’ powers or give additional authority to the board. Understanding these rules ensures compliance with company procedures. Customized articles are legally binding only when filed with Companies House, otherwise, the default Model articles apply. Reviewing shareholder agreements and contracts is important to grasp directors’ full decision-making authority.
The decisions that directors can make without requiring shareholder consent vary based on the company’s articles of association. It’s important to review any shareholders’ agreements, directors’ service or employment contracts, and previous resolutions to understand the full scope of directors’ decision-making authority.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io!
Related Articles
Was this helpful?
0 / 0