Board meeting must formalise all decisions

CD writes: I am one of four directors of a small catering company. Over the past few months I have found it difficult to work with one of my fellow directors as we have differing ideas about how the company should be run. We are in disagreement as to whether we should expand our company´s premises. I believe we are in a strong position to do so now but he is, in my opinion, being overly cautious in believing that to move now is a bad idea. I recently had lunch with my other fellow directors. We decided expansion is a good idea and the company should press ahead with my proposals. When we informed him, he claimed that we cannot bind the company in this way. I do not understand. We are three directors in agreement and represent a majority of the board. Is he correct?

Answer

Your fellow director is correct. No formal decision has been passed by the board of the company. Although a resolution can be informally passed if all the directors of the company agree, in your case one of the directors does not agree. You and your co-directors have merely given informal assent to informal discussions. The board can act legitimately only if its actions have been authorised by a resolution properly passed at a board meeting. If the directors purport to act in accordance with the decision of the majority, but without the authority of a board meeting, their acts are not those of either the board or the company. You therefore need to convene a board meeting and pass the necessary resolution before you proceed.