Board resolutions are the formal mechanism through which company directors make decisions and authorise corporate actions. In Malaysia, the Companies Act 2016 governs how these resolutions must be passed, recorded, and maintained. Understanding the different types of resolutions and their requirements is essential for directors, company secretaries, and business owners alike.
What Is a Board Resolution?
A board resolution is a formal decision made by a company's board of directors during a properly convened meeting or through a written circular process. It serves as official documentation that the board has considered and approved a particular course of action. Board resolutions are legally binding on the company and provide evidence of corporate authority for various transactions.
Common situations requiring board resolutions include opening bank accounts, appointing or removing directors, approving major contracts, declaring dividends, issuing shares, and authorising borrowings or security arrangements.
Types of Resolutions Under the Companies Act 2016
Ordinary Resolutions
An ordinary resolution is the most common type and requires a simple majority—more than 50% of votes cast by members entitled to vote. Under Section 291 of the Companies Act 2016, an ordinary resolution is sufficient for most routine company matters unless the Act or the company's constitution specifically requires a special resolution.
Examples of matters typically decided by ordinary resolution include appointing directors, approving directors' remuneration, adopting annual financial statements, and appointing auditors.
Special Resolutions
Special resolutions require a higher threshold of approval—at least 75% of votes cast by members entitled to vote. Section 292 of the Companies Act 2016 mandates special resolutions for more significant matters that fundamentally affect the company's structure or rights of members.
Matters requiring special resolutions include amending the company's constitution, changing the company name, reducing share capital, voluntary winding up, and converting between private and public company status.
Directors' Resolutions
While shareholders pass ordinary and special resolutions, directors pass board resolutions (also called directors' resolutions) to manage the company's day-to-day affairs. These typically require a simple majority of directors present at a properly convened board meeting, unless the company's constitution provides otherwise.
Quorum Requirements
A quorum is the minimum number of participants required to be present before a meeting can validly proceed and pass resolutions. Under Section 330 of the Companies Act 2016, the quorum for a board meeting is two directors, unless the company's constitution specifies a different number.
For general meetings of shareholders, Section 328 states that the quorum is two members personally present, unless the constitution provides otherwise. A single-member company requires only one member present to constitute a quorum.
What Happens Without Quorum?
If quorum is not achieved, the meeting cannot proceed, and any resolutions purportedly passed would be invalid. Directors should ensure adequate notice is given for meetings and that attendance can be confirmed beforehand. If quorum becomes inquorate during a meeting (directors leave), business must cease until quorum is restored.
Circular Resolutions (Written Resolutions)
The Companies Act 2016 permits decisions to be made without holding a physical meeting through circular resolutions, also known as written resolutions. This mechanism provides flexibility, particularly for companies with directors or shareholders in different locations.
Directors' Circular Resolutions
Under Section 303, directors may pass a resolution without a meeting if all directors entitled to vote sign a document containing a statement that they are in favour of the resolution. The resolution is effective when the last director signs. This is particularly useful for urgent matters or when convening a physical meeting is impractical.
Members' Written Resolutions
Section 297 allows private companies to pass members' resolutions without a meeting. A written resolution is passed when members representing the required majority (simple majority for ordinary resolutions, 75% for special resolutions) have signified their agreement. The resolution must be circulated to all eligible members, and they have 28 days to respond unless a different period is specified.
Note that public companies cannot use written resolutions for members' decisions—they must hold actual general meetings.
Procedural Requirements for Valid Resolutions
Notice Requirements
Proper notice must be given for meetings. For board meetings, the company's constitution typically specifies notice requirements. For general meetings, Section 316 requires at least 14 days' notice for private companies and 21 days for public companies, unless members agree to shorter notice.
Recording and Documentation
Section 343 requires companies to maintain minutes of all board meetings, general meetings, and resolutions passed. Minutes must be kept for at least seven years and should record the names of directors present, matters discussed, and resolutions passed. Accurate minutes provide crucial evidence of corporate decisions and protect directors in demonstrating proper governance.
Filing Requirements
Certain resolutions must be lodged with the Companies Commission of Malaysia (SSM) within 30 days. These include special resolutions, resolutions affecting share capital, and resolutions appointing or removing directors. Failure to lodge within the prescribed timeframe may result in penalties.
Practical Tips for Passing Board Resolutions
Plan ahead: Identify which type of resolution is required before scheduling meetings. Check both the Companies Act and your company's constitution for specific requirements.
Document thoroughly: Keep clear records of notices sent, attendance, discussions, and voting outcomes. Well-maintained documentation protects the company and its directors.
Use circular resolutions wisely: While convenient, ensure all eligible directors or members receive the document and understand what they are signing.
Seek professional advice: For significant transactions or unfamiliar situations, consult your company secretary or legal advisor to ensure compliance.
Review your constitution: Many companies have constitutions that modify default provisions in the Act. Always check your specific requirements.
Consequences of Invalid Resolutions
Resolutions passed without proper procedure may be challenged and declared void. This can unwind transactions, expose directors to liability, and create uncertainty for third parties dealing with the company. Courts may examine whether proper notice was given, quorum was present, and voting thresholds were met.
Conclusion
Board resolutions are fundamental to corporate governance in Malaysia. Whether you are passing an ordinary resolution to appoint an auditor or a special resolution to amend your constitution, understanding the procedural requirements ensures your company's decisions are valid and enforceable. When in doubt, engage qualified professionals to guide you through the process.
Disclaimer: This article provides general information about board resolutions under Malaysian law and does not constitute legal advice. Laws and regulations may change, and the application of law varies based on specific circumstances. For advice on your particular situation, please consult a qualified legal professional.