Power of Directors in Company Decision Making
Fairly regularly misunderstood is the issue of company decision making and who has the power to make decisions.
The shareholders of a company, often considered the “owners”, are not expected to be involved in how the company is actually managed and run although they may have certain shareholder rights which could include the right to vote on decisions which affect the company.
The directors of the company, known commonly as “the board of directors” or simply the “board” are responsible for the management of the company, both day to day and more broadly. The directors owe duties to the company in their decision making governed by statute and breaching those duties could have serious consequences for a director. If you are a company director, you should therefore make sure that you are always aware of what your decision making powers are and how these decisions may be impacted by those who own the business.
What are the powers of directors?
The company’s articles of association, the written rules about how the company is run, provides the directors with the power of company decision making and to run the company on a day to day basis. The Model Articles provided by the Companies (Model Articles) Regulations 2008, give the directors the autonomy to exercise any power, other than where the articles specifically state otherwise. Alternatively, a company may choose to adopt bespoke articles providing even clearer instruction as to what the directors (or individual directors) can and can’t do.
Companies that need to further distinguish the decision making powers of shareholders and directors can get help with the drafting and implementation of bespoke articles from the team of commercial solicitors here at GA. Get in touch today.
How can a company director make a decision?
The board of directors must exercise their powers collectively. This means that company decision making must be made jointly unless specific powers are delegated to individual directors, such as a decision required to be made about a niche area of knowledge which a particular director has experience/qualifications in.
The articles may expressly delegate company decision-making powers to particular directors, for example, a director who manages suppliers and contracts may have specific power to enter into contracts up to a certain value or of a specific term without needing to seek the consent of the board each time.
Making decisions on behalf of the Company
Directors acting with actual authority (authority expressly provided to the director in the articles or by resolution) will bind the company with any decision they make. In addition, a director who appears to hold such authority (perhaps through their words or conduct) will also bind the company if the third party relies upon its belief that the director holds the appropriate authority.
Such authority to bind applies to entering into contracts on behalf of the company so can present a real risk to the company if the director acts outside their limits of authority.
Acting in the best interests of the company
Directors hold a fiduciary duty to act in the best interests of the company as a whole. This duty applies throughout their term of being a director, even after they cease to be a director. Therefore, it is crucial that the directors act within their powers authorised by the company’s articles and/or any resolution.
Within company decision making, directors should have regard to:
- the consequences of any decision both in the short and long term
- the interests of the company’s shareholders, customers, suppliers, employees and investors
- the reputation of the company and the impact the decision might have, and
- fairness between the members of the company.
Should you have any questions about your own decision making powers or wish to seek clarity about the actions of other company directors, please speak to our experienced team of corporate and commercial solicitors today on 01752 203520 or email james.peterson@gasolicitors.com.
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