The Role Of The Board

Question 1

What is the board’s role if the company is small?

What is the board’s role if the company is big? (3)

Answer 1

• Board’s role will differ depending on size of company
• If small = directors involved in all areas of the company’s activities and delegate few of their managerial powers

• If large = directors unable to manage all activities and delegate significant managerial powers to others
○ Day-to-day management isn’t carried out by the board
○ Role:
1. Determine strategic goals
2. Monitor managers; and
3. Enforce adequate governance procedures

Question 2

Who determines the managerial powers of the board?
Who is power initially invested in?
What does Art.3 MA say?
Is power bestowed on directors individually?

Answer 2

• = Set out in company’s articles
• Power initially vested in members who then delegate to directors (articles also delegate to directors)
• Art.3 MA = the directors are responsible for the management of the company’s business and may exercise all the powers of the company, subject to the articles
• Power is bestowed on directors collectively = a single director can’t exercise managerial power on his own unless the sole director of the company or the articles personally delegate such power to him

Question 3

Do members lose their managerial power if they delegate their powers?
What does Art.4 MA say?
How can shareholders control the director’s powers? (3)
When will the power of management revert back to members? (3)

Answer 3

• Where members delegate managerial power to directors, then the members lose their managerial power (unless the articles provide otherwise)
• Art. 4 MA = members may pass a special resolution to direct the directors to take of refrain from taking a specified action
• Shareholders can control the directors’ powers vested to them by the articles by:

1. Altering the articles via special resolution
2. Refusing to re-elect the directors of whose actions they disapprove
3. Passing an ordinary resolution under s.168 CA2006 (removes them)

• The power of management that the members delegate can revert back to them where:

1. There is no board of directors
2. The directors refuse to attend board meetings
3. The board cannot achieve quoracy

Question 4

Can directors delegate their powers to others?
What is sub-delegation?
Can delegation be modified?
Can the board continue to exercise delegated powers?

Answer 4

• Delegation form directors to others must be allowed by the articles:
• Art.5(1) MA = subject to the articles, directors may delegate any of their powers as they think fit
• Art.5(2) MA = if do delegate, they can authorise that person to delegate those powers to others = sub-delegation
• Art.5(3) MA = directors are free to wholly or partly revoke any delegation or to modify the terms / conditions
• If directors delegate, the board can continue to exercise the delegated power

Question 5

Who has the power to call a board meeting?
What will happen if due notice is not provided?
How much notice must be given?
What must the notice state (3) and to who must it be sent?

Answer 5

• Power to call a meeting = in company’s articles
• Art.9 MA for Private; Art.8 MA for Plc = any director may call a board meeting by providing notice of it to the other directors

• Failure to provide due notice will invalidate the board meeting
• Notice must be reasonable depending on how urgent the matter is and the board’s usual practice
• Notice must be given to each director and state:
1. The date and time of the meeting
2. Meeting place
3. Proposal on how directors will communicate with each other if not all at the same place

Question 6

Board meetings:
What is a quorum?
What constitutes a quorum?
What are the consequences of an inquorate meeting?
Will all directors count towards the quorum?

Answer 6

• = the minimum number of ‘qualifying persons’ that must be present for a board meeting to be able to transact business and validly make decisions

• Company’s articles determine what constitutes a quorum
• Where articles are silent = a majority of the directors will be required to attend
• Art.11 MA Private; Art.10 MA Plc = quorum = 2 qualifying persons present at the meeting
○ Unless: Limited company has 1 director = quorum = 1

• An inquorate meeting cannot conduct any business, unless the articles provide otherwise
• A meeting that starts with a quorum but then becomes inquorate must stop unless the articles provide otherwise
• Not all directors present at a meeting will count towards the quorum
• Art.14 MA Private; Art.16 MA Plc = a director that has conflicting interests with the company will not be allowed to vote and therefore not normally count towards the quorum

Question 7

How are board decisions made?

What happens if the votes for and against are equal?

Answer 7

• A matter for the companies articles

• If the votes for and against are equal, the decision is lost
• Art.13 MA Private; Art.14 MA Plc provides a director (usually the chair) with a casting vote

Question 8

What does Art.7 MA say about the decsions of directors of a private company? (2)
What does Art. 8 say?

Answer 8

• Art.7 MA = any decision of the directors must be either:

1. A majority decision at a meeting; or
2. A decision taken in accordance with article 8

• Art.8 MA = decisions can be made via written resolution if directors eligible to vote indicate to each other they are in agreement and they form a quorum

Question 9

What does Art.13 MA say about decisions of directors of a public company?
Can directors decisions be made by a written resolution?
When will the WR be adopted and what is its affect?

Answer 9

• Art.13 MA = subject to the articles, a decision is made at a board meeting by a majority of the votes and each director has one vote

• Art.17 MA = decisions can be made without a meeting via a directors’ written resolution (not to be confused with written resolutions of the company)
• Art.18 MA = directors’ WR will be adopted if all the directors entitled to vote sign a copy of the resolution
• Adoption of the resolution will be regarded as if the decision was taken at a directors’ meeting

Question 10

Which companies must record minutes or proceedings of directors’ meetings?
How long must records be kept for?
Which records must be kept under the model articles?

Answer 10

• S.248(1) CA2006 = every company must record all minutes or proceedings at directors’ meetings

• Must keep records for at least 10 years from the date of the meeting
○ Failure = criminal offence

• Model articles state records must be kept for 10 years of every directors’:
• Unanimous decision or majority decision
• Written resolution

Question 11

What is a company secretary?

Answer 11

• Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] = company secretary is ‘the chief administrative officer of the company’
• S.1121 and s.1173 CA2006 = company secretary is an officer of the company and can be liable for any legal breach under which an officer can be held liable

Question 12

Which companies are required to have a company secretary?
Who can direct the company to appoint one?
Which register is required to be kept?

Answer 12

• S.270 CA2006 = a private company is not required to appoint a company secretary unless articles say otherwise
• s.271 CA2006 = every plc must appoint a company secretary… who has the requisite knowledge and experience, and has 1 or more professional qualifications (s.273 CA2006)

• S.272 CA2006 = the Secretary of State can direct the company to appoint a secretary and failure is a criminal offence

• S.275 CA2006 = company must keep a register of its secretaires
Failure = criminal offence

Question 13

What are the 6 tasks of the company secretary?
What additional tasks are required in larger companies?
Is the company secretary an agent and what authority do they have?

Answer 13

• Tasks include:

1. Ensuring that filing and disclosure requirements are fulfilled
2. Preparing the agenda and minutes of board meetings and general meetings
3. Ensuring that board meetings and general meetings are conducted in accordance with the law and the company’s articles
4. Maintaining the company’s books and statutory registers
5. Advising on the preparation and publication of annual reports and accounts
6. Advising on compliance with legal requirements and best practice recommendations

• In larger companies = the role of the company secretary will include governance matters
• Prov.16 UK CG Code = company secretary is responsible for advising the board on all governance matters
• Company secretary is an agent of the firm
• Given express authority to engage in certain acts and has apparent authority to bind the company in relation to administrative matters