What Are Board Resolutions & What Is Their Importance?Download Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Corporations in Singapore are managed by their board of directors. A crucial part of the directors’ job is to form board resolutions on behalf of the corporation. In this guide, we will explain what board resolutions are, why they are important, the different types of company resolutions, tips for writing good resolutions, and more.
What Is a Board Resolution?
A board resolution is a formal, legally binding document that records the decisions made by a corporation’s Board of Directors during a board meeting. This could be the decision to change the company’s ownership structure, appoint new board members, sell company shares, or issue dividends. When the board votes on decisions concerning company equity made by the company’s shareholders, it is called a company resolution.
The resolution identifies the roles of each director, records if they voted in favour of or against a particular decision and includes the minutes of the board meeting during which the board made the decision. Board resolutions also authorize the company’s committees to act on the matters that the board voted on.
Types of Company Resolutions
For serious decisions, it usually calls for an unanimous resolution, requiring 100% of the board to vote in favour to pass. Given this strict requirement and how difficult it is to pass such resolutions with large boards, unanimous resolutions are rare. One example of where a unanimous resolution is necessary is when the board is considering winding down the company.
Other than board resolutions, shareholders can also make two types of resolutions. The first type of being ordinary resolution, which occurs when more than 50% votes in favour, passing the resolution by a simple majority.
The second type is special resolutions, which are for more important issues and must be lodged with Accounting and Corporate Regulatory Authority (ACRA). The company usually sets this majority percentage figure in its constitution, though it is most common to see this figure set at 75% or higher. In other words, most special resolutions require 75% or more of the shareholders to vote in favour of them to pass. Generally, the board must be notified ahead of time about such meetings that have special resolutions on the agenda.
Key Parties in a Board Resolution
- Board Chair. The board chair certifies the final draft of the resolution to ensure everything is accurate. He or she also has the right to a casting vote, also known as a tiebreaker vote, which is the decisive vote in case there is a tie in the number of votes in favour of and against a proposal.
- Directors. The directors cast votes in favour of or against a board resolution. If the resolution passes, all directors must sign it to certify the result of the resolution.
- Secretary. The Secretary certifies copies of all board resolutions and ensures that they’re stored safely with the corporate bylaws and other important documents. The secretary also ensures that copies of board resolutions are available to any parties that must have one for reasons of legal compliance (e.g. the Accounting and Corporate Regulatory Authority, or ACRA).
Why Are Board Resolutions Important?
First, it is important to remember that directors are fiduciaries to the corporation and are legally obliged to avoid conflicts of interest. Board resolutions document directors’ decisions on important corporate matters and serve as a written record to show if directors successfully fulfilled these duties. Second, board resolutions can be used as evidence in court cases that concern the corporation.
Third, and most importantly, given that corporations manage large sums of money, board resolutions are necessary to keep a written, legally-binding record of how directors manage these funds and the corporation’s other financial and non-financial resources.
When Are Board Resolutions Required?
Singapore has no law in place that requires corporations to create board resolutions for any specific purpose or submit them to a government agency or other supervising entity. Corporations generally keep resolutions to maintain a record of important company decisions and in case shareholders want to verify the actions that the board took on their behalf.
That said, some institutions like brokerage firms, banks, the Inland Revenue Authority of Singapore (IRAS), or the court sometimes demand copies of board resolutions during audits or verification procedures.
Three Tips for Writing Board Resolutions
- Keep your language as simple as possible. There is no need to add complicated jargon when you do not need to. This only makes it more difficult for people to understand the issue that is being voted on.
- The last sentence of the resolution should state the final action that the board took during the meeting. This way, the reader can quickly skip to the bottom to read the result of the resolution if (s)he does not have time to read the entire thing.
- Add an appendix that contains supporting documents, related policies, and other relevant sources.
Sprout With Us!
Sometimes a board resolution is required when making major company decisions. Let Sprout Asia help you prepare the documents and filings for your company’s needs. Leave the corporate compliance to us and have more time to focus on your business. With our partnership, we can grow your company at a faster rate, allowing it to reach its full potential.