The authority of the board of directors will principally depend on the company’s articles of association. Generally speaking, a company’s articles will provide that the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.
Accordingly, subject to the company’s articles of association and provided that the company is not restricted by any previously passed special resolution, most matters can be collectively decided upon by the board of directors in a duly convened board meeting.
The company’s articles of association will usually set out the provisions governing the procedure for convening a board meeting.
However, under the Companies Act 2006, certain decisions require a resolution of the shareholders’ of the company in a general meeting and these decisions are therefore outside the authority of the directors. Such decisions include adopting new articles of association or amending the current articles, changing the company’s name and winding up the company.
Subject to the company’s articles of association, the powers of the board are vested in the board as a whole, meaning that the directors must make decisions collectively, usually by majority or unanimous decision. However, the vast majority of companies’ articles of association will allow the board to delegate its powers to an individual director, thereby granting that director express actual authority to independently make binding decisions on behalf of the company.
The usual practice of the company and the specific role of the directors within the company should also be taken into consideration when assessing an individual director’s authority. Being a director may confer implied actual authority to make certain decisions on behalf of the company when appointed in a particular role, such as a finance director or operations director. However, such director’s authority would be limited to the specific scope of work which that director undertakes in his or her particular office.
If a director exceeds his or her actual (express or implied) authority when dealing with third parties, the actions of the director will still bind the company if the director was acting within his or her apparent or ostensible authority. Apparent or ostensible authority may arise if a third party relies on a representation made by a person with actual authority that the director did in fact have the necessary authority to make such decision or where the third party is dealing with the company in good faith, not knowing that the director is acting outside the limitations of his or her powers. Where a third party is dealing with a company in good faith, the power of the directors to bind the company is deemed free of any restriction of limitation. Therefore, the third party is not expected to inspect the company’s articles of association or make any other enquiries as to the director’s authority during the course of negotiations.
In addition to any powers provided in the company’s articles of association, directors also hold the following specific powers conferred by the Companies Act 2006 and common law.
When exercising any powers on behalf of the company, directors must ensure that they comply with their statutory and fiduciary duties as directors. In particular, directors must act within their conferred powers and within a way that promotes the success of the company.
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Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.