Directors are responsible for managing the day-to-day business of the company. A board resolution (also often called a directors’ resolution) is their primary tool for exercising this power. It’s used for company decisions that don’t require shareholder approval.
1) When Is A Board Resolution (Director’s Resolution) Needed?
In Singapore, the law (i.e. Companies Act) doesn’t list every situation that requires a board resolution. This flexibility lets companies operate differently depending on their structure and industry.
Because of this, a company’s constitution plays a key role as it sets out when resolutions are needed and how they should be passed (like quorum and voting rules).
Many external parties, from banks to government agencies, require a board resolution (directors’ resolution) as conclusive evidence that a particular action has been duly authorized by the company.
Common situations when a Directors’ Resolution is needed:
- Opening a corporate bank account: The bank will always ask for a board resolution to prove the company has approved the opening of the account and designated the signatories.
- Appointing a CEO or Managing Director: The board uses a resolution to formally appoint key executives.
- Entering into an office lease or significant contract: This provides a formal record that the company’s leadership approved the commitment.
- Issuing new shares (after shareholders have given their general approval).
- Borrowing and Encumbrance of Assets: Resolutions are required for borrowing money and for mortgaging or otherwise pledging company property as security for a loan.
2) How To Pass A Board Resolution (Directors’ Resolution)
A board resolution can be passed through two primary methods: at a formal board meeting or by means of a written resolution. The choice of method often depends on the complexity of the issue, the urgency of the decision, and the provisions of the company’s constitution.
i. The Formal Board Meeting
The traditional method for passing a resolution is during a physical or virtual board meeting, which allows for real-time discussion, debate, and questioning among directors before a vote is taken. The process involves several key elements:
- Quorum: For a board meeting to be valid, a minimum number of directors, known as the quorum, must be present. While the Companies Act sets a default quorum of two members, this is almost always superseded by a specific provision in the company’s constitution, which defines the exact number of directors required to conduct business. A meeting held without a proper quorum is invalid, and any resolutions passed are void.
- Voting: Once a matter has been discussed, it is put to a vote. This is typically done by a show of hands, although a formal poll can also be conducted. The resolution is considered passed if it receives the support of a simple majority (more than 50%) of the directors present and voting, unless the company’s constitution specifies a higher threshold for certain decisions.
- Minutes vs. Resolutions: It is essential to distinguish between meeting minutes and the resolutions themselves. The minutes are the comprehensive, official record of the entire proceedings of the meeting, capturing key discussion points, debates, and outcomes.
A resolution, by contrast, is the formal, legally binding document that records a specific decision made during that meeting.
ii. Directors’ Resolutions In Writing (Written Resolutions)
To enhance efficiency, particularly for routine or non-controversial matters, Singapore law permits directors’ resolutions to be passed in writing without convening a formal meeting.
- Process: The draft resolution is circulated to all directors for their review. Each director signifies their assent by signing the document. The resolution is legally passed once the required majority of directors have signed it.
- Legal Validity: A written resolution, once properly signed, has the same legal force and effect as one passed in a formal meeting. However, this method is only valid if it is permitted by the company’s constitution.
3) Board Resolutions vs. Shareholder Resolutions
A common point of confusion for business owners is the distinction between decisions made by the board of directors and those reserved for the company’s owners: the shareholders.
The Singapore Companies Act creates a clear hierarchy of authority. While the board is entrusted with the day-to-day management of the company, certain fundamental decisions that affect the core structure and ownership of the company are legally reserved for shareholders.
A. Directors’ Resolutions
Also known as Board Resolutions, Directors’ Resolutions are passed by the company’s directors and pertain to the management and operational affairs of the business. The standard voting threshold for a board resolution is a simple majority (more than 50%) of the directors present and voting at a meeting where a quorum is met.
B. Shareholder Resolutions: Ordinary Resolutions And Special Resolutions
An ordinary resolution is the most common type of shareholder resolution, used for important but non-fundamental matters, usually addressed at the company’s Annual General Meeting (AGM). It requires approval from a simple majority (more than 50%) of the votes cast by shareholders at a general meeting.
A special resolution is reserved for the more significant corporate actions that can fundamentally alter the company’s structure, identity, or the rights of its shareholders.
Due to their gravity, these decisions require a much higher level of consensus. A special resolution must be passed by a supermajority of at least 75% of the total votes cast by shareholders.
Learn more about Ordinary and Special Resolutions via our article.
Conclusion
Board resolutions or director’s resolutions are crucial for good corporate governance.
Legal Proof. It serves as official evidence that a decision was properly made by the company’s management. Banks, potential investors, and regulatory bodies frequently require these documents as evidence of proper authorization for key transactions.
Authority. It gives clear authority to specific individuals (like the CEO or CFO) to act on the company’s behalf, such as signing a contract or managing a bank account.
Clarity. A well-maintained register of resolutions can foster trust and enhance stakeholder confidence, demonstrating a commitment to transparent and responsible management.
In short, a board resolution is the engine of corporate action. It’s the formal, legally binding instrument that turns the directors’ decisions into official company policy.
