Q

Board Resolution: When and Why is it Required?

It is a formal document that the board needs to write during the board meetings. When a board resolution is passed at least a minimum number of directors should be present to conduct a proper board meeting.

Every company has a board of directors and managers.

They need to manage the company records regardless of its size, maturity and industry they are in; whatever the decisions the board make they have to list them down in the formal document of the company which is commonly reffered as the board resolution of a company.

What is Board Resolution?

Board resolution is also commonly referred to as corporate resolution. It is passed to find a solution for a problem or any of the contentious matter of the company. Board of the company decides on the course of action.

It is a common tool for the board to perform its duties. Sometimes the board is faced with pressing issues on which they require timely decision; these decisions are referred to as board resolutions.

NOTE: Once a board resolution is passed it is binding on the company.

Types of Board Resolution

When decisions are made on any particular matter, it is important to know whether it requires board approval or not. The approval is required only on the matters that are going to affect the owner/founder or the shareholders of the company.

The counsel on the matter can be taken from the Memorandum of the company(MOA) or from Article of Association(AOA)

There are 2 types of board resolutions that the board of directors need to pass in their association:

  • Ordinary Resolution

 An ordinary resolution in a company is passed if a majority of votes by 50% are cast in favour of the shareholders and directors for any day to day matters of the company which can involve appointing or removing the director of the company.

  • Special Resolution

A special resolution requires 21 days of clear notice to all the members that are attending the meeting or are taking part in the voting. The resolution needs 75% of the majority to pass the ballot.

Matters that require special resolution:

  1. Amendment in the Memorandum or Article of association
  2. Change in the company name through a Form (INC-22)
  3. Reduction in Share Capital through Form (SH-7)

Decisions that Require Board Approval

Companies act 2013, has listed down certain matters that commonly require the approval of the board through board resolution:

  • Board resolution for appointing a director of the company.
  • Change in the authorised capital of the company
  • Amending the MOA or AOA of the company
  • Declaration of paying dividends
  • If the company enters into merger or acquisition
  • Resolution for opening a bank account
  • For closure of the company

Significance of Board Resolution

It is essential that the board of directors keep the resolution that has been passed safe and secure. The board resolution is basically protected or saved in the bookkeeping record of the company. If in case the records are lost due to any of the incidence natural or artificial disaster the company has to make a formal application to MCA to provide them with a duplicate resolution or copy of the passed resolution.

Who can Make a Board Resolution?

Any director of the company can call a meeting by merely providing reasonable notice to all the members that proposed to attend the meeting. If the board of directors have taken prior permission through MOA and AOA can conduct a meeting through video conferencing and provide a vote on the matter.

In a board resolution, the members of the company present in the meeting unanimously come to a conclusion on the matter; the resolution can be passed immediately in the meeting itself and can be noted down by an authorised person or director.

Sample Board Resolution

A board resolution of a company can be long or short depending upon the nature of the resolution. It is essential that the board of the company recognise the purpose of the meeting and the decision that has been passed. It should contain the names and roles of the board members as well.

Following is the sample board resolution used for the purpose of opening a bank account:

What happens when the approval is not recorded in the board meeting?

If the approval for a particular action is not recorded in the resolution, you have an option of passing such resolution in another board meeting. Otherwise, ratification can be made for past matters, in the new board resolution.

Conclusion

Board of directors of the company come to various vital decisions for the company; as it is an artificial person and cannot act on its own. These decisions should be logged down in a formal document (Board Resolution), as the directors are answerable to the shareholders.



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