What decisions can directors make without shareholder consent?

Directors and shareholders have different responsibilities in a company, although the same people often hold both positions simultaneously. Shareholders typically make company decisions only in exceptional circumstances, while the board of directors has the power to make most routine decisions without shareholder consent.  

The rules on company decisions and directors’ powers are set out in the Companies Act 2006, the articles of association, and sometimes (where applicable):

• a private shareholders’ agreement 
• directors’ service agreements or contracts of employment
• resolutions passed by the company shareholders 

As a director, it’s essential to check all of these documents carefully to determine exactly which decisions you have the authority to make and which matters you must defer to the shareholders.

Decision-making by directors 

Directors are responsible for managing a company’s day-to-day business on behalf of its shareholders (members) and for the benefit of the company. While performing any aspect of their role, they must adhere to the 7 general duties of directors, as specified in the Companies Act 2006 (sections 171 to 177):

1. Act in accordance with the powers they are granted by the company’s constitution (the articles of association) and only exercise those powers for the purposes for which they are conferred
2. Seek to promote the success of the company for the benefit of its members as a whole
3. Exercise independent judgment
4. Exercise reasonable care, skill, and diligence
5. Avoid conflicts of interest
6. Not to accept benefits from any third parties
7. Declare interests in any proposed transactions or arrangements with the company

The articles of association is a constitutional document that sets out the particular rules of the company, including directors’ decision-making powers. In many companies, a private shareholders’ agreement is also drawn up to provide additional protection to members, including the level of authority the directors have to make company decisions without their consent.

Common types of company decisions that directors can make 

Under the Model articles of association, which most new and smaller companies use, directors have the authority to make any decision other than those expressly prohibited by the articles, a shareholders’ agreement, their service or employment contracts, or resolutions of the members. 

This means that the board of directors usually has the power to make the following types of company decisions without shareholder consent:

• day-to-day management decisions 
• matters relating to routine financial and accounting activities 
• choosing suppliers and accepting new clients
• entering the company into legally binding contracts with third parties
• strategic and operational decisions
• HR-related activities, including the appointment of new directors 
• implementing company-wide policies 
• approving share transfers 
• declaring interim dividends (those issued during the financial year, at any time between annual general meetings)
• recommending final dividend amounts to be declared by shareholders (final dividends are those which are usually paid at the end of the financial year after the accounts have been approved)
• authorising a change of registered office address 
• appointing a company secretary 
• engaging accounting and legal services for the company
• appointing the company’s first auditor (or the first one after a period of audit exemption) and filling a casual vacancy for the role

On all such matters within their remit, the board must exercise their decision-making powers collectively. However, in areas where individual directors have particular expertise over others, they may have the authority to make certain decisions without consulting the rest of the board.

If you are the sole director of the company, you are responsible for making decisions relating to the company’s affairs on your own.

The decision-making procedure for directors

The board of directors must make company decisions at board meetings or by written resolution, in accordance with the rules and procedures set out in the Companies Act 2006 and the articles of association.

As per the Model articles, the general rule is that directors can make decisions by majority agreement (over 50%) at a board meeting or by unanimous agreement in writing. These types of formal decisions are known as ‘resolutions’. 

• Are board meetings optional for private limited companies?

Written resolutions are becoming increasingly common due to their flexible nature. It’s often more convenient to make decisions this way rather than having to arrange and convene at meetings.

However, for many company decisions, directors can greatly benefit from discussing, debating, and voting on proposed actions at board meetings, whether they are held in person or remotely.

The information below applies if your company has adopted the Model articles in their entirety. The rules may differ if your company has modified Model articles or bespoke articles, so be sure to check.

Decisions at board meetings

To vote on a proposed resolution at a board meeting, you must ‘call’ the meeting by giving notice to all eligible directors. No statutory notice period is required, and it does not have to be in writing. However, the notice must indicate:

• the proposed date and time of the meeting
• where it is taking place
• means of communication during the meeting if the participating directors are not going to be in the same place (e.g. via video conferencing)

A quorum must be present for directors to vote on any proposed actions at the meeting. The required quorum is two, unless a higher number is specified in bespoke articles or by previous board resolution.

To vote on a proposed resolution at a board meeting, the directors can cast their votes by poll or a show of hands. If more than 50% of the directors vote in favour of the motion, the board resolution is passed. The decision is then legally binding.

Decisions by written resolution

A written resolution enables directors to vote on a proposed action in writing rather than at a meeting. However, you can only pass this type of written resolution with unanimous agreement from all directors. This means that all directors eligible to vote must be in favour of the motion – otherwise, it cannot pass.

You can circulate directors’ written resolutions and voting instructions on paper. Each director can then sign the document to indicate their agreement. Alternatively, you can distribute and vote on proposed written resolutions via electronic means. For example, by email or on a website.

How to record directors’ decisions 

If you pass a board resolution at a meeting, you must record the decision in writing in the meeting minutes. You must keep a copy of these minutes and any written resolutions for at least 10 years.

Which company decisions require shareholder consent?

Under the Companies Act 2006, the most significant decisions affecting a company are usually reserved to shareholders. Unless otherwise stated in modified or bespoke articles or a shareholders’ agreement, the following company decisions require shareholder approval by ordinary or special resolution:

Ordinary resolution

• removing (dismissing) a director from office 
• declaring final dividends up to the amount recommended by the directors
• changing the directors’ powers 
• approving substantial property transactions
• authorising the directors to issue more shares
• approving a director’s loan
• approving a director’s service contract with a fixed term that exceeds two years 
• ratifying (i.e. forgiving; retrospectively approving) a director’s conduct where it amounts to negligence, default, breach of duty, or breach of trust in relation to the company
• approving a purchase of own shares (i.e. a ‘share buyback’) out of distributable profits
• appointing auditors 

Special resolution

• amending the company’s articles of association
• changing the company name
• reducing the company’s share capital
• approving a redesignation of shares 
• creating a new share class 
• disapplying shareholders’ pre-emption rights upon the issue or transfer of shares
• purchase of own shares out of capital 
• approving company re-registration – e.g. from limited to unlimited (or vice versa) or private to public (or vice versa) 

The rules on company decisions may differ in companies with amended or bespoke articles of association. For instance, it may be the case that certain shareholder decisions typically passed by ordinary resolution require approval by special resolution, a higher majority vote, or even unanimous agreement of all eligible members. 

• A guide to limited company resolutions

Furthermore, some companies may restrict directors’ powers beyond those set out in the Model articles, while others may grant the board of directors additional decision-making powers. 

This is why it’s crucial to fully understand your company’s articles. By doing so, you can ensure that everyone is acting within their powers and adhering to the prescribed procedures specified in the company’s constitution. 

Moreover, if your company has modified or bespoke articles, the provisions are only enforceable if you file a copy with Companies House. Otherwise, the Model articles will automatically apply by default.

Thanks for reading

Exactly which decisions directors can make without shareholder consent depends on the company’s articles of association. You must also check any shareholders’ agreements, directors’ service or employment contracts, and previous resolutions, to determine the extent of directors’ decision-making powers.

If you have any questions about this post, please comment below. Alternatively, you should contact a commercial solicitor for expert advice on resolving decision-making issues in your company, drafting bespoke articles of association, or drawing up an effective shareholders’ agreement.