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Board Resolution

The Board of Directors of a Company are completely responsible to make all the key managerial decisions of a company, which concern matters beyond its day-to-day operations. Since the board of a company can have as many as 15 members, every matter is decided upon by adopting resolutions passed by a majority of votes casted in the Board meetings held for this purpose. This blog is written with the aim of providing a complete overview of Board resolutions passed by Indian companies under relevant laws like the Companies Act, 2013.
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A Board meeting is a meeting held by the Board of Directors of a Company. In India, companies are legally bound to conduct at least 4 meetings throughout the year. Such meetings are organized with specific agendas, like deciding upon relevant business matters like obtaining loans and investments, appointing or expelling key officials of the company, deciding upon their remuneration, declaring profits of the company, and making changes in the foundational details of the company like its name, address, and capital.

What are Board Resolutions?

The key managerial decisions of a company, beyond the matters of its day-to-day operations, are taken by its directors. All the directors of a company collectively form the Board of Directors to decide upon significant matters in the interests of the company, by way of passing a resolution approved by the majority of votes of the directors present and voting. The casting of votes and the passing of resolutions are all done in the board meetings held by the company.
So, what exactly is a board resolution and what is its purpose? A Board resolution is a formal document where all the decisions to be taken by the Board of Directors are mentioned. This document is then voted upon by the directors in a Board meeting for their approval, and is considered “approved” only when it receives the majority votes from the directors present and voting. Only after the resolution is approved, all the decisions mentioned in it are considered “taken” or the resolution itself is considered to be “passed”.
Once a resolution is passed by the Board of directors, and further approved by the Shareholders in their general meeting, its decisions must be implemented by the company. In other words, the decisions mentioned in a resolution passed by the Board of Directors are legally binding upon the company, subject to the approval of the shareholders.

What are the different types of Board Resolutions?

As mentioned earlier, a Board Resolution is passed in the Board meeting of directors by a majority vote of the members present and voting. Now, this majority could be a simple majority or a special majority. Accordingly to the requirement of majority votes, we can categorize Board resolutions into
  • An Ordinary Resolution
  • A Special Resolution
We have discussed both these types of resolutions in the table below.
S. No. Ordinary Resolution Special Resolution
1.
Ordinary Resolutions are passed by a simple majority of votes (more than 50%) of the directors present and voting in the meeting of the Board of Directors.
Special Resolutions are passed by a special majority of votes (more than 75%) of the directors present and voting in the meeting of the Board of Directors.
2.
Some of the matters of where decisions are adopted by an ordinary resolution passed by the Board of directors include:
  1. Appointment, removal, and remuneration of Directors
  2. Adoption of annual financial statements of the company
  3. Declaration of dividend
  4. Appointment of first and every subsequent auditor of the company
  5. Decision over remuneration offered to the auditors
  6. Amendments in the Memorandum of Association

Some of the matters of where decisions are adopted by an special resolution passed by the Board of directors include:

  1. Amendment to the Articles of Association
  2. Issue of equity shares
  3. Change in the registered office of the company
  4. Change of authorized capital of the company
  5. Removal of first auditor
  6. Buyback of shares
  7. Appointment of Directors beyond the maximum prescribed limit, i.e.15
  8. Obtaining loans and investments by a company

How is a Board Resolution passed?

Board Resolutions are passed in the annual meetings held by the Board of Directors. Within a year, the Board of Directors of companies are legally bound to meet at least 4 times or dates decided at the company’s discretion. The notice for such meetings is sent to the directors mentioning the agenda of the meeting, at least 7 days prior to the date on which the meeting is to be held. The member directors of the Board can attend the meeting physically, or virtually via video conferencing as well.
The meeting will be held only if it satisfies the requirements of the quorum, as decided by the company. Upon fulfilling the requirements of the quorum, the meeting will be held by the company, and any one member of the board can introduce the resolution in the meeting. This resolution will have to be voted upon by the other members, and based on the majority required for it, the resolution will be adopted or rejected by the Board. The voting can be done by a show of hands, casting electronic votes, or by conducting a poll, as decided by the board members. The proposed and passed resolutions at the board meetings must be regularly maintained in its minutes, with all the other relevant details of the meeting.

What is MGT 14?

According to Section 117 (3) of the Companies Act, 2013, there are certain special resolutions that need to be filed to the Registrar of Companies to intimate the decisions taken by the Board of Directors in the interests of the company. These resolutions that need to be filed to the ROC must be done in Form MGT 14, within 30 days from the date of passing of such resolutions.
Along with the copy of the approved or passed resolution, the company will also have to attach and submit an explanatory statement, which explains every single decision mentioned in the resolution in an elaborate manner. Filing an explanatory statement is mandated under Section 102 of the Companies Act.
A complete list of board resolutions to be filed to the Registrar of Companies in form MGT 14 has been mentioned below.
  • Annual Financial Statements and audit of account books
  • Authority for offering donations for political purposes
  • Making an investment or giving of loan/guarantee/security by the company.
  • Third party transaction contract or agreement.
  • Appointment of a Directors
  • Approval of company prospectus
  • Alterations in terms of services of directors
  • A calling to the shareholders to pay the unpaid or due amount of their subscribed capital 
  • Authorisation of buy-back of securities as provided under Section 68
  • Issuing shares and debentures within and outside India
  • To obtain loans
  • Approval of the Board of Directors annual report
  • To expand the business of the company
  • To approve amalgamation, merger or reconstruction of the company 
  • Taking over a firm or acquiring the controlling stake in another firm

What is the penalty for late filing of MGT 14?

Form MGT 14 must be filed within 30 days from the date of passing of resolution under Section 117 of the Companies Act, 2013. However, if the form was not filed on or before the expiry of the said due date, Section 403 of the Companies Act lays down the provision of late filing of the form. Under this section, an additional 270 days window after the expiry of the due date is provided, with the submission of added late filing fee.
Penalties will be imposed if the non filing of MGT 14 extends beyond the due date and the additional late filing window. The details of such penalties have been mentioned below. Penalties shall be imposed on the defaulting company and the defaulting officer of the company.
  • Companies shall be imposed with an initial penalty of Rs. 5 lakhs. If the non filing continues even after this penalty is paid, an additional penalty will be imposed at Rs.500 for each day of default, extendable to a maximum of Rs.25 lakhs.
  • Officers who were in charge of filing form MGT shall also be considered at default and will be penalized for negligence. The amount of penalty begins with an initial penalty of Rs.50,000. If the non filing continues even after this penalty is paid, an additional penalty will be imposed at Rs.500 for each day of default, extendable to a maximum of Rs.1 lakh.

Conclusion

We hope that this blog was helpful for you to completely understand what board resolutions are, how they are proposed and passed by a company, and how they are implemented by the company. All of these resolutions are to be maintained by the company in the minutes of the board meeting, while there are some that need to be filed to the Registrar of Companies as well. Although Setindiabiz is not directly involved in providing services related to the passing of resolutions at the helm of the company, if such resolutions are to be intimated to the Registrar of Companies in form MGT 14, we are here to assist you in filing the same. For this purpose, you can always contact us and request a callback from our expert legal and startup advisors.

About Setindiabiz

Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.

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