covering provisions relating to board meetings for private limited companies

In this article, Komal Shah does a comparative study between UK, Ireland and Indian laws on Board meetings for Private Limited Companies. 

As someone who has shifted across continents and back, I have been asked quite a few times about the differences in work experiences in India and abroad. So I picked up an area which is probably one of the most common areas company secretaries can come across, in their work lives, and decided to draw up a comparison.

Below I have taken a few aspects covering provisions relating to board meetings for private limited companies which might give an idea into the legislative intents / prevalent practices in India, Republic of Ireland (Ireland) and the UK.

Number of provisions

India

The Companies Act, 2013 has a whole Chapter XII dedicated to meetings of the board and its powers. Then there are the Companies (Meetings of the Board and its Powers) Rules 2014. Both of these do not deal with the minutes for the board meetings and so these are dealt with in Section 118 under Chapter VII of the Companies Act 2013 and Rule 25 of the Companies (Management and Administration) Rule 2014.

Besides these, in Table F to Schedule I which provides the model Articles of Association for a company limited by shares, articles 67 to 76 deal with the ‘proceedings of the Board’. If you digress from some of these and have your own provisions in the Articles, you have that much more to look into while ‘convening and conducting’ a board meeting.

In addition to the above, there is a Secretarial Standard I which needs to be adhered to, as required under Section 118 of the Companies Act 2013.

There are exemptions available to section 8 (non profit) companies and private companies which are small, start ups, IFSC private companies or dormant companies, but these are specific to relevant sections.

Ireland

Section 160 of the Companies Act 2014 deals with the meetings of the board of directors. Section 166 deals with the minutes of the proceedings of the directors. Other than these, there seem to be no other sections or rules specifically dedicated to the meetings of the board of directors of private companies. The Companies Act 2014 does go on to provide for general meetings of different types of companies though, such as public limited companies and designated activity companies and for specific situations such as mergers or winding up.

United Kingdom

There are no direct sections in the Companies Act 2006 dealing with the meetings of the board of directors. The only relevant sections are sections 248 and 249 which relate to the minutes of the directors’ meetings. Also, the articles 7-16 of the Companies (Model Articles) Regulations 2008 deal with the board of directors’ meetings. However, companies can have their own Articles of Association registered, which can have different provisions than the model articles.

Food for thought: So it seems a lot more needs to be looked into, if you are holding a private limited board meeting in India, than in Ireland or UK, assuming that none of the entities are regulated.

Frequency

India

Per section 173 of the Companies Act 2013, the first meeting of the board of directors should be held within 30 days of incorporation (60 days for a specified IFSC private company). Thereafter, at least 4 board meetings should be held in every year with a gap of not more than 120 days between two meetings. For section 8 (non profit) companies, one person companies, small companies, dormant companies and a start up private company, this rule is relaxed to holding one board meeting in each half of the year.

Ireland

Section 160(1) of the Companies Act, 2014 just says that the directors of a company may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. That’s it. No minimum number of meetings.

United Kingdom

No specific section in the Companies Act 2006 is dedicated exclusively to the meetings of the board of directors and therefore, there is no minimum number of meetings to be held. Article 8 of the model articles for a private company in fact, provides that the decision taken by the directors can be a unanimous decision, where all eligible directors indicate to each other, by any means, that they share a common view on the matter. This means that the entire business of the private limited company may be conducted without holding any meeting of the board at all, (no, not even accounts approval meeting), simply by all directors agreeing in writing, to a decision.

Food for thought: What could be the logic behind specifying the number of board meetings that need to be held in India, while the other two countries seem to leave it to the board’s judgment? Is there an anxiety that decisions may be taken outside of the corporate governance framework, without all directors’ inputs and that there may not be a mechanism to record dissent, if any, other than board meeting minutes? Possibly.

Mode of participation

India

According to Section 173(2) of the Companies Act 2013, the mode of participation can be in person or through video conferencing or any other audio visual means which are capable of recording proceedings. Telephone meetings or, to my mind, even Skype meetings are therefore not permitted. Further, video conferencing or other audio visual means cannot be used for approval of annual financial statements, board’s report, prospectus, amalgamation, merger, demerger, acquisition or takeover.

Ireland

Section 161 of the Companies Act 2014 permits the meeting of directors to be held by telephone, video or other electronic communication where each of the directors are able to speak to each of the others and be heard by each of the others. It also goes on to provide how the location of the meeting will be decided in case the directors are at different places.

United Kingdom

The participation conditions specified by Article 10 (1) of the model articles per the Companies (Model Articles) Regulations 2008 are (i) that the meeting should have been called and taken place in accordance with the articles and (ii) each of the directors should be able to communicate to the others any information or opinions they have on any particular item of business of the meeting. Article 10 (2) then states that in determining participation, it is irrelevant where any director is or how they communicate with each other.

Food for thought: The UK seems to be the most non specific here. The focus is entirely on the fact that each of the directors should be able to communicate the information or opinions to the others; the mode is irrelevant. So when challenged, there should be some kind of evidence that this communication was a) possible and b) done.

Also to note that only India imposes the need to have recordings of video conferencing or other audio visual means. The other two countries leave it to the practices set by each company.

Business to be conducted and decisions

India

Section 179(3) provides a list of powers which can only be exercised by the board through a resolution passed at a meeting i.e. there cannot be a circular resolution for these decisions. This list includes issue of securities, making calls for unpaid monies, authorizing buyback, approving financial statements, diversifying the business, approve amalgamation, merger, reconstruction or acquisition. There are also other specific businesses covered by different sections, which require a resolution of the board at its meeting, such as approval of related party transactions (Section 188).

Further, the Companies (Meetings of the Board and its powers) Amendment Rules, 2015 provide that making political contributions, appointment or removal of key managerial personnel and appointment of internal and secretarial auditors must also be carried out by resolutions at a board meeting.

The Secretarial Standard I also provides an illustrative list of items which should not be approved by a resolution by circulation.

There are no specific sections in the Companies Act 2013 which states how the decisions of the board shall be taken except that unanimous consent of the board is mandated for certain matters. However, regulation 68 of Table F of Schedule I states that the questions arising at the meeting of the board shall be decided by a majority of votes and in case of equality of votes, the chairperson (appreciate the gender neutrality here!) shall have a casting vote.

Ireland

There are no sections which specify matters which must be decided at a board meeting. Section 160(2) of the Companies Act 2014 states that questions arising at a meeting of the board shall be decided by a majority of votes and when there is an equality of votes, the chairperson shall have a casting vote.

United Kingdom

Again, no sections mandating matters which must be decided at a board meeting. As already discussed, articles 7 and 8 of the model articles provide that the decisions taken by the board can either be a majority decision at a meeting or a unanimous decision.

Food for thought: Though there are no specific regulations in Ireland or UK, from experience, I am aware that the companies do maintain ‘terms of reference’ for the board and committees, where matters which are of significant importance to the company’s business are reserved for the board. But this is entirely left to the board to decide and not mandated by legislation.

Record / Minutes

India

According to Section 118 of the Companies Act 2013 requires the minutes of the proceedings of the board of directors meetings to be prepared and signed and also kept in the books maintained for the purpose within a period of 30 days. The minute book must also be serially numbered.

Further, the Companies (Management and Administration) Rules 2014 specify that the minute books for members, board, committees and creditors must be maintained in distinct books. Each page of the minute book must be initialed or signed and last page must be dated and signed by chairman of that particular meeting or next board meeting.

Ireland

According to Section 166 of the Companies Act 2013 the company shall cause the minutes of appointments of officers made by its directors, names of directors present at each directors’ meeting and all resolutions and proceedings of directors’ meeting to be entered in the minute book kept for the purpose.

United Kingdom

 According to Section 248 of the Companies Act 2006, every company must cause the minutes of all proceedings of its meetings of directors to be recorded and the records must be kept for a period of 10 years from the date of the meeting.

All three countries penalize the non maintenance of minutes. In addition, India penalizes the tampering of minutes.

Food for thought: There are dedicated sections for maintenance of minutes in the companies acts of all three countries, which probably goes to show the importance of the minutes. The minutes assume all the more importance as admissible evidence of discussions and decisions where the entities are regulated.

So, to conclude…

On one hand, while the Indian attitude of micro managing things (specifying which pages should be initialed, which ones should be signed!) seems to be at play and there is a case for making the requirements less detailed, one has to note that this detailing might be coming from the misuse of non specific legislation in the past.

But given that the law today is this specific, there is also a case for setting up the system really meticulously and monitoring it periodically for compliance with the Indian law, or else something or the other is likely to turn out against the specification.

References

http://ebook.mca.gov.in/default.aspx

http://www.irishstatutebook.ie/eli/2014/act/38/enacted/en/html

http://www.legislation.gov.uk/ukpga/2006/46/contents

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