Management of a Company – An Overview of Companies Act

The standard rule provided in the Companies Act 2001 (the ‘Act’) is that the business and affairs of a Company are to be managed by, or under the direction or supervision of, the board of directors. This is, however, subject to any exceptions, limitations or modifications made by the Act or the Company’s constitution. The Act defines the term ‘Board’ as the number of directors acting together who form the required quorum, or if the Company has only one director, then that director.

The Act further defines the term ‘director’ as including inter alia any person occupying the position of director by whatever name called and this definition includes an alternate director but does not include receivers. This is indeed an extensive definition which includes such persons who are likely to influence the management of a company.

The Board may, subject to the Act and the Company’s constitution, delegate any of its powers to a committee of directors, a director or employee of the Company, although the Board remains responsible for the exercise of the power by that delegate as if the Board had directly exercised the power itself. The powers of the Board which the Act precludes from being delegated relate to (a) change of name of the Company; (b) issue of shares; (c) distributions and discounts; (d) acquisition of shares by the Company; (e) redemption of shares by the Company; (f) financial assistance for acquisition of shares; (g) transfer of shares; (h) change of registered office or address for service; and (i) approval of amalgamation.

The Eighth Schedule of the Act governs the proceedings of the Board and it provides inter alia that a resolution of the Board is passed if it is agreed to by all directors present without dissent or if a majority of the votes cast on it are in favour of it. It is also subject to the provisions of a Company’s constitution, thus allowing shareholders of a Company to decide in a Company’s constitution on the manner in which the proceedings of the Board shall take place.

Where management of the company is vested in the Board, the Board has sole responsibility for all company decisions relating to management. A shareholders’ meeting therefore has no power to pass a resolution overriding the board on such a matter. The shareholders therefore are generally unable to make decisions as to the sale or purchase of assets by the company or the institution of legal proceedings. In an appropriate case, however, permission may be granted by the Court to a shareholder to initiate proceedings in the name of the company by way of derivative action.

There are, however, a number of exceptions to the general principle.

The Companies Act has two important statutory exceptions: the right to pass resolutions relating to management, and restrictions on entry into major transactions. The shareholders always have a right at a shareholders’ meeting to pass resolutions relating to company management, and the chairperson of the shareholders’ meeting has an obligation to allow time for discussion of management matters. These resolutions are not binding unless the constitution so provides; they will therefore generally only have the status of recommendations. The Act has also introduced a provision prohibiting the company from entering a “major transaction” (to be explained in subsequent article) without the consent of the shareholders.

  • Published in print edition on 18 September 2015

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