A Guide to Company Decision Making

Directors are responsible for the day-to-day management and for making operational and strategic decisions on the behalf of the company. Their duties and the extent of their decision making capabilities are not determined by the Companies Act 2006 and are therefore a matter for the company’s constitution. Directors do however have a fiduciary obligation to the company to act in its best interests. These obligations are outlined in sections 171 – 177 of the Companies Act 2006 and include a duty to promote the success of the company and a duty to exercise reasonable care, skill and diligence.

The scope and extent of director decision making is often determined in the company’s Articles of Association. Unless stated otherwise in the Articles, director decision making is determined by a majority decision at a board meeting. In the event of a tie, the Articles will usually provide that the chairman of the board has a casting vote.  Where the company has only one director, the Articles specifying the quorum number may need to be disapplied by way of special resolution signed by the shareholders and the solo director is then able to make decisions on their own in accordance with sections 171 – 177 above.

In order for the director’s meeting to be validly passed, there are three requirements that must be satisfied:

1. Notice of the meeting must have been given to all directors within the specified time in accordance with the Articles;
2. The minimum quorum of people specified in the Articles must be met (as above, if there is only one director and the quorum cannot be met, a written resolution must be passed by the shareholders to disapply the relevant Articles);
3. Voting must be conducted in accordance with the procedure specified in the Articles. This procedure is at the discretion of the company.

There are certain matters which the Companies Act 2006 reserve for shareholder approval which include decisions that may impact share ownership, decisions regarding company structure, administration and corporate governance controls. Bespoke provisions in the company’s Articles of Association may also reserve other matters for shareholder approval, such as the power to declare dividends.

Shareholders will decide on matters that have not been delegated to the directors or those that are specifically outlined as decisions for shareholders in the company’s Articles or a shareholders agreement, if there is one in place. These decisions will be determined by resolutions at general meetings or through written resolutions.

The types of resolution a shareholder might pass are split into two distinct categories, both of which have strict formalities that must be followed:

1. Ordinary resolution – this requires the approval of more than 50% of the voting rights
2. Special resolution – this requires 75% or more of the voting rights to approve.

The Companies Act 2006 specifies when a decision will require an ordinary or special resolution. For example, amending a company’s Articles of Association will often require a special resolution to be approved whereas the appointment of a director may only require an ordinary resolution.

As with director decision making, where there is a meeting of the shareholders, there are specific procedural formalities which must be adhered to such as: reasonable notice being given and meeting minimum quorum requirements.