Types of Board Resolutions under the Companies Act, 2013

[YAGAY andSUN]

A Board Resolution is a formal decision or agreement made by the Board of Directors of a company. It is typically passed during a board meeting and is used to document the company’s decisions or approvals on various matters. Under the Companies Act, 2013 (as amended from time to time) and relevant rules and regulations, different types of board resolutions are classified based on the type of decision being made.

1. Ordinary Resolutions (Simple Majority Resolution)

An ordinary resolution is one that requires a simple majority of directors present and voting at the board meeting for it to be passed. The approval of more than half (i.e., a majority) of the directors’ present is enough to pass such resolutions.

• Examples of Ordinary Resolutions:
  • Approval of the company’s financial statements and annual report.
  • Appointment of company officers, such as managers or executives.
  • Approval of routine operational matters such as contracts or agreements with customers or suppliers.
  • Approval of ordinary business matters, such as issuing dividend recommendations to the shareholders.

Legal Basis: Section 114(1) of the Companies Act, 2013.

2. Special Resolutions

A special resolution is one that requires a three-fourths majority of directors present and voting at the board meeting. This type of resolution is typically used for significant decisions and requires greater approval than ordinary resolutions.

• Examples of Special Resolutions:
  • Alteration of the company's Memorandum of Association (MOA) or Articles of Association (AOA).
  • Change in the company’s name, registered office address, or capital structure.
  • Approval for the issue of shares or debentures.
  • Approval for mergers, acquisitions, or amalgamations.
  • Approval of a buy-back of shares.
  • Removal of a director before the end of his or her term.

Legal Basis: Section 114(2) of the Companies Act, 2013.

3. Unanimous Resolutions

A unanimous resolution is passed when all members of the Board agree on a particular decision. This type of resolution is not very common but may be required in certain matters where unanimous approval is needed.

• Examples of Unanimous Resolutions:
  • Any matter that requires the complete consent of all directors to proceed with, such as the dissolution of a company.
  • The resignation of the entire board of directors.

Legal Basis: Unanimous approval is governed by the Articles of Association (AOA) of the company, which might require unanimous consent for certain matters.

4. Written Resolutions

A written resolution is a resolution passed in writing, without the need for a physical meeting of the board. This is allowed when the articles of association permit such a resolution and all directors sign the resolution in writing.

• Examples of Written Resolutions:
  • Approving non-controversial matters that don’t require detailed discussion in a meeting.
  • Approving company decisions on minor operational matters that don’t require physical meetings.

Legal Basis: Section 175 of the Companies Act, 2013.

5. Board Resolution for Borrowing Powers

A board resolution passed to approve borrowing powers is used when the company requires borrowing funds or taking loans from financial institutions, banks, or other sources.

• Examples of Borrowing Resolutions:
  • Approving the borrowing of funds for business operations or working capital.
  • Authorizing the execution of loan agreements or the creation of charges on company property for securing loans.

Legal Basis: Section 179(3) of the Companies Act, 2013.

6. Board Resolution for Appointment of Auditors

A Board Resolution is used to appoint or reappoint the statutory auditors of the company. Under Section 139 of the Companies Act, 2013, the appointment or reappointment of auditors must be confirmed by the Board.

• Examples:
  • Appointment or reappointment of statutory auditors.
  • Fixation of auditors' remuneration.

Legal Basis: Section 139(1) & Section 142 of the Companies Act, 2013.

7. Board Resolution for Declaration of Dividend

A Board Resolution is passed to approve the declaration of dividends. While the final declaration is made at the Annual General Meeting (AGM), the board must pass a resolution to recommend the dividend to shareholders.

• Examples of Dividend Resolutions:
  • Recommendation of interim or final dividends.
  • Declaration of dividend based on the financial statements.

Legal Basis: Section 123 of the Companies Act, 2013.

8. Board Resolution for Appointment or Removal of Directors

The Board of Directors can pass resolutions to appoint or remove directors from the company. Directors can be appointed based on the provisions of the Articles of Association and shareholder approval (if applicable).

• Examples of Board Resolutions:
  • Appointment of new directors.
  • Removal of directors before their term expires.

Legal Basis: Section 169 of the Companies Act, 2013.

9. Board Resolution for Alteration of Capital

The board resolution for the alteration of capital may involve changes such as increasing or reducing the company's share capital, conversion of shares, or reorganization of capital.

• Examples of Alteration Resolutions:
  • Increase in the authorized share capital.
  • Reduction in share capital.
  • Issue of bonus shares or rights issues.

Legal Basis: Section 61 of the Companies Act, 2013.

10. Board Resolution for Appointment of Key Managerial Personnel (KMP)

Under the provisions of the Companies Act, certain key managerial personnel (KMP) need to be appointed by the Board of Directors through resolutions.

• Examples of KMP Resolutions:
  • Appointment of the Managing Director or CEO.
  • Appointment of Chief Financial Officer (CFO).
  • Appointment of Company Secretary.

Legal Basis: Section 203 of the Companies Act, 2013.

11. Board Resolution for Related Party Transactions (RPT)

Certain transactions between a company and its related parties require the approval of the Board of Directors through a resolution, ensuring compliance with the provisions under Section 188 of the Companies Act, 2013 and SEBI Listing Regulations.

• Examples of Related Party Transactions:
  • Approval for transactions with related parties like directors, key management personnel, or entities in which they have an interest.

Legal Basis: Section 188 of the Companies Act, 2013, and SEBI Listing Regulations (if applicable).

12. Board Resolution for Investment Decisions

A Board Resolution is passed to approve major investment decisions, acquisitions, or disposals of assets.

• Examples:
  • Approval for acquisition or sale of assets or business units.
  • Approving investments in subsidiaries or other companies.

Legal Basis: Section 179(3)(d) of the Companies Act, 2013.

Conclusion

Board resolutions serve as formalized decisions on a range of matters crucial for the company's operations and governance. The Companies Act, 2013, along with amendments and SEBI Guidelines (for listed companies), sets out the legal framework for the types of resolutions that must be passed. It is important for companies to ensure compliance with the prescribed procedures for passing these resolutions, as non-compliance may lead to penalties, legal repercussions, or invalidation of certain decisions. Regular review of the company’s Articles of Association, adherence to corporate governance norms, and staying updated on regulatory changes will ensure proper implementation of board resolutions.