13 FAQs about Directors' queries in a private company.
- Are we required to appoint a chair of the board?
- Can we appoint our chairperson for any term, and remove them when we want, or are there restrictions?
- We have a chairperson in mind, but they are asking what they will actually need to do.
- Our chairperson has no formal qualifications - does it matter?
- When must companies have board meetings, and what should the business of the meetings be?
- How do directors handle conflicts of interest?
- A director has requested an ad hoc board meeting - do we have to hold one?
- What is involved in calling a directors' meeting?
- We need a board decision urgently and haven't time to call a meeting - can we all agree without holding a meeting?
- I am the only director of my company - how do these rules apply to me?
- My last company held electronic board meetings - why can't we?
- We have seven directors - do they all have to be present at board meetings, and vote?
- The chairperson has signed the minutes of the last board meeting without approval of the rest of the board. Are they valid?
1. Are we required to appoint a chair of the board?
A company’s articles of association usually say that the board may (but does not have to) appoint someone to act as the chairperson of the company generally, but that a person must chair each meeting of the board. More specifically, they usually say:
- your board of directors may appoint one of their number as chairperson of the company but does not have to
- if the board appoints a chairperson, that person chairs every board meeting they attend (if they are willing to act)
- if the board has not appointed a chairperson generally (or the chairperson is unwilling to act, or they are not present within ten minutes after the board meeting starts), the directors present must choose one of their number to chair that particular board meeting
2. Can we appoint our chairperson for any term, and remove them when we want, or are there restrictions?
Typically, the company’s articles of association allow for appointment of a chairperson by the board for a fixed term, indefinitely or on a meeting-by-meeting basis. The chairperson’s role is always non-executive - that is, it relates to the functioning of the board of directors (and the calling, conduct and recording of shareholders’ meetings), and not directly to the day-to-day management of the company. But whoever is appointed chairperson may also hold a separate executive role, carrying day-to-day operational responsibilities.
It is common for the chair of the board to also chair shareholder meetings (depending on the company’s articles of association), even if they are not also a shareholder themselves.
Articles of association usually provide that the board of directors can remove the chairperson by majority vote at any time. If the chairperson has been appointed for a fixed term or indefinitely, under a formal agreement, take advice before removing them, in case the removal gives them a contractual right to damages.
3. We have a chairperson in mind, but they are asking what they will actually need to do.
The chairperson's main tasks are organising and presiding over board and (usually) shareholder meetings:
- ensuring that proper notice and pre-meeting information is supplied
- ensuring that meetings are properly conducted in accordance with the law and best practice
- ensuring that proceedings and decisions are properly recorded
The chairperson should also be able to provide impartial advice and support to the other directors (including the chief executive in larger companies) in discharging their roles and responsibilities, and to the board as a whole. The chairperson, like any other director, must always act to promote the success of the company (even if that means making decisions, taking action, etc on behalf of the company that conflict with their own interests) and their advice and support will reflect that.
4. Our chairperson has no formal qualifications - does it matter?
No formal qualifications are required. In choosing whom to appoint as chairperson the board must, however, be sure they have the skills and experience to fulfil the role.
To carry out the role effectively, the chairperson needs to have a sound grasp of their role and responsibilities and, particularly, the law relating to the calling, conduct and recording of decisions at board and shareholder meetings. They need to be well-organised, able to identify problems and the means of overcoming them. They also needs excellent interpersonal communications and conflict resolution skills.
The chariperson should ensure good communication with shareholders to gain an understanding of their views and inform the board of directors about shareholder concerns. In particular, the chairperson should know the views of major shareholders on governance, strategy and remuneration.
5. When must companies have board meetings, and what should the business of the meetings be?
There are no specific rules saying how often directors must meet, and what the business of their meetings should be when they do. Rather, directors must hold sufficient board meetings to show that they are complying with their many legal duties to their company, such as to promote its long-term success, to act within the company’s constitution and powers, and to act with reasonable care, skill and diligence. The business they deal with at meetings should also show that they are complying with their duties to the company.
If the company gets into trouble, and a liquidator or administrator can show that the directors have breached their duties, they may be taken to court - in some instances they can even be made personally liable for all or some of the company’s debts. The minutes of board meetings should therefore be carefully drafted to ensure that they protect the directors against this.
For example, minutes of board meetings should show that the directors are considering the long-term strategy and direction of the company, given its products or services, its marketplace and its competitive position. They should show that the directors have regular, reliable information on the company’s financial position, particularly its cash flow, and are acting on that information.
Directors are allowed to delegate tasks and the authority to carry them out, for example, to:
- individual members of the board - for example, to make a finance director responsible for financial and tax matters
- committees of directors - for example, to appoint an audit committee to deal with the auditors and audit-related matters in larger companies
- non-directors such as employees, right from the most senior managers through to workers in the mail room
Board minutes should show that any decision to delegate was sensible, was made on terms that require regular reporting back and, just as importantly, that the board are constantly monitoring and supervising what is going on in their company - that they have not abrogated their overall responsibility for the company’s affairs.
Whether a particular decision should properly be made by the board or can be left to, say, a senior manager, will depend upon the company – for example, how large it is, where it is located, how diverse its business is - and the structure and composition of its board - for example, whether it is large or small, all in one place or scattered, wholly executive or partly non-executive. Some companies therefore have specific policies setting out which matters are ‘reserved to the board’, ie can only be decided upon at a board meeting. These could include incurring borrowings above a certain level, taking on senior employees above a certain salary or entering into contracts to buy equipment or plant above a certain value.
Directors should attend as many meetings as possible in order to demonstrate that they are fulfilling their duties to the company as diligently as they can.
If the agenda includes a major, contentious matter, there are dissenting directors, or the company may be heading for financial trouble, it can be sensible to take advice on how to minute the discussions, as well as on the situation generally.
6. How do directors handle conflicts of interest?
A conflict of interest may arise when a director has a personal interest in a transaction that their company proposes to enter into, either directly or indirectly (for example, through a relative or another business they are involved with). If this could reasonably be regarded as likely to give rise to a conflict between their interests and the company’s, the Companies Act requires them either to disclose the nature and extent of their interest to their fellow directors at a board meeting, or to notify them of their interest in writing. If the circumstances change, they must ‘refresh’ the disclosure or notice.
There are similar rules for transactions or arrangements that the company has already entered into, where the director has not previously disclosed a personal interest.
Each director is also under a duty to avoid conflicts of interest, ie any situation in which their interests may conflict, directly or indirectly, with the company's. This includes any situation where they could exploit any of the company's property, information or opportunities for personal advantage. Such situations can be authorised by the company’s articles, or by a resolution of the independent directors (ie those who are not personally interested in the situation, or connected to someone who is).
7. A director has requested an ad hoc board meeting - do we have to hold one?
It depends on your articles of association. A company's articles usually say that:
- any director can call a board meeting, at any time; or
- if the company has a company secretary (which is optional for private companies, but most still have one) any director can instruct the secretary to call one
However, boards often set dates for board meetings in advance (for example, the second Tuesday in every month), together with dates for giving notice of each meeting to board members. If a board meeting is coming up, you may be able to persuade the director to wait until that meeting. If they won't wait, they can call a board meeting or ask the secretary to call one.
If you think that they want a meeting for personal motives (eg just to cause trouble), and may therefore be breaching their duties to the company by trying to call it, take advice immediately, as you may be able to stop it. If they are acting in good faith, it may be sensible for you to offer to call the meeting for them, so it is done properly.
8. What is involved in calling a directors' meeting?
In practice, boards often nominate one director to be responsible for organising scheduled board meetings, and to whom requests for meetings by individual directors can be referred. This should be the chairperson if the board has appointed one.
If the company has a company secretary, the responsible director will usually work with the secretary to organise meetings. Otherwise, the board may agree that they can work with, or delegate to, an employee or to outsiders such as their legal advisers, that the board considers competent to help.
A responsible director (and anyone working with them) will draft the agenda for each board meeting, and decide on the information to be sent to the directors in advance of the meeting and on the form and content of the notice of the meeting. Notice of each board meeting should be given to all directors, even if a director states that they cannot attend, or if they are travelling and too far away to attend, or even if they are ill, unless the articles say it need not be (for example, there is often an exception for directors who are absent from the United Kingdom).
The notice does not have to be in writing unless the company's articles say it must (which is rare) - although it is prudent to give written notice if possible. Some companies give notice verbally (face-to-face, or by phone), some send notices by post, while others send out hard copy, fax or email notices. Whatever the practice, it must be reasonable and fair to the directors, taking into account factors such as where they are likely to be, the meeting venue and the time of the meeting.
Some companies send no written agenda or other information with the meeting notice. However, best practice advises sufficient information should be given with the notice to enable directors to decide whether or not to attend the meeting, and to promote effective use of meeting time. They should also be able to prove that they had sufficient information to comply with their statutory and other duties (eg to make decisions that promote the long-term success of the company) if they are challenged.
Usually this means at least management accounts (especially cash flow, turnover and profitability to establish the credit or debt position and show if additional action is needed). In larger companies there may be reports from the divisional directors or their managers on the various aspects of company operations. Other documentation may be needed to support discussion and decisions on particular agenda items, for example the appointment of a new director, an application for external funding, or an acquisition.
Usually all board members receive the same information, even if they are part-time or non-executive.
If the board has not agreed a standard notice period for board meetings, and none is specified in the articles, the notice period must be 'reasonable', ie it must balance the need to give each director time to make arrangements to attend against the urgency of the business of the meeting. Seven days is usually a reasonable period, but it will depend on the circumstances - for example, if directors are based abroad, longer may be needed.
If insufficient notice of a meeting is given and not all directors can attend, those who were unable to attend may have the right to demand a second meeting, eg to try and overturn the decisions made at the first meeting.
The responsible director should ensure minutes are taken at meetings by a competent person, and circulated to directors in a timely fashion after the meeting, along with any separate documents relating to new decisions and follow-up action.
9. We need a board decision urgently and haven't time to call a meeting - can we all agree without holding a meeting?
If the company’s articles allow, directors can take decisions without meeting, provided every single director who would have been entitled to attend and vote on a decision if a meeting had been held indicates agreement to it. The wording used in modern articles is often that all directors must “indicate to each other by any means that they share a common view on a matter”.
In practice, this usually means that they each sign an identical ‘written resolution in lieu of a meeting’. Written resolutions take effect once the last director indicates their agreement.
It is sensible for companies to have a policy determining matters such as how written resolutions are to be circulated (for example, saying that they can be emailed as .pdf documents to email addresses specified for that purpose by each director), and how directors can indicate their agreement to a written resolution - particularly if directors want to be able to indicate their agreement by email.
10. I am the only director of my company - how do these rules apply to me?
You can only be a sole director if your company's articles allow sole directors - check them, and take advice if they do not.
If they do, you should record all director decisions you make in writing, particularly those that relate to contracts entered into between you and the company. You should also declare in writing any personal interest that you or someone connected with you - for example, your spouse, civil partner, children, other relatives, co-habitees, business partners, companies where you control more than one third of their voting rights, etc - has in any transaction or arrangements that your company enters into.
11. My last company held electronic board meetings - why can't we?
If the company's articles allow, directors can participate in board meetings remotely, using electronic communications. The key requirement is usually that all directors can hear each other and be heard, which means that telephone conferencing is a common means of participating. It is even better if they can see each other and be seen too, using video-conferencing.
It is good practice for a company's board to agree a policy on remote participation in meetings. It could require, for example, that notices of board meetings should specify how a director may participate remotely, and how directors prove they are who they say they are when calling in, and how the chairperson can check periodically that all directors are still participating.
Virtual meetings without a location are not permitted so the notice should always specify a location for the meeting and there should always be at least one director in that location. If the majority of the directors participate remotely from a location that differs from that specified in the notice, there may be an argument that the decision was actually made where the majority is physically present. This could have tax consequences if that place is outside the UK. Take advice.
12. We have seven directors - do they all have to be present at board meetings, and vote?
There must be a quorum of directors at a board meeting - a minimum number of directors present in order for the meeting to make decisions that will be legally binding on all directors, present or absent. The articles of association usually say that the quorum may be fixed by directors, but, if the directors make no decision, the quorum is two. If there are seven directors, the directors may have decided to fix the quorum at, say, four directors - or they may not have bothered, in which case the quorum is two. Check the company's articles and previous board resolutions.
Each director has one vote at board meetings, unless the articles of association state otherwise, and the articles usually provide that decisions are passed if approved by a majority of the votes cast. The articles usually give the chairperson a casting vote if there is a tie. The chairperson must ensure that directors have enough information and time to discuss issues before they vote.
A director of a company is disqualified from voting on an agenda item if they have a personal interest in it (and they cannot be counted in the quorum at that part of the meeting, although they will be for the items on which they can vote), unless the rule is relaxed by the articles of association or a resolution of the shareholders, either generally or in respect of a particular matter.
13. The chairperson has signed the minutes of the last board meeting without approval of the rest of the board. Are they valid?
The chairperson is responsible for ensuring that decisions are correctly minuted. If the chairperson of a board meeting or of the next succeeding meeting signs the minutes of that meeting, they are evidence of the decisions taken at it unless someone proves otherwise - ie the person challenging them has to prove they are wrong rather than the company having to prove they are right.
This applies whether or not the chair of that meeting is still the chairperson of the company, and whether or not the minutes were also approved by the board first - approval of the rest of the board is not required by law. In practice, directors are often sent minutes of board meetings shortly after the meeting and asked to notify the company if they object to them.
The directors are entitled to inspect minutes of board meetings at the company's registered offices. Auditors are also entitled to inspect them (and other company records, such as financial reports, which may result from board decisions). Shareholders are not, unless they have reserved that right, for example, in the company's articles of association or a shareholders' agreement, which is rare.