Day 96 Decision-making and the directors

Decision-making and the directors

As we discussed before, the company is guided by the internal governance rule, which is in accordance to its constitution or replaceable rules. Therefore, all the decision made in a body corporate should comply with it. There are two ‘organs’ in a company that take decisions corresponding to the internal governance rules: the board of directors and the general meeting of members. Each of them is specified with certain powers on decision making. It is crucial for us to remember that the powers of two groups are sovereign and cannot interfere/override each other’s decisions. 

Under Section 198A(1) & (2) Corporations Act(2001), the board of directors has been granted with the general management power. So the company should be managed or directed by directors unless the terms specified in the company constitution. This power makes the directors become the most important character in company the decision-making process. As a consequence, the Corporations Act regulated that private company must have at least one director (S.201(a)), and public company need appoint at least two directors(S.201(b)). Section 9 defines the director as the person who is validly appointed to the position or on the general grounding act in accordance to that position. Hence these shadow/ de facto directors who are not literally described as ‘director’ will still undertake the similar obligations. Commonly, the company constitution would regulate the process of appointing a director. However, if the replaceable rules apply, the director should be appointed by ordinary resolution of members. The board may also appoint directors, but only with the agreement by the shareholders. The removal progress of the director is performed by the ordinary resolution as well. Due to the importance of this occupation, there are series restrictions that prohibit the disqualified person to be elected. For instance, the candidate must be over 18(S.201B (1)), did not convict certain offences(S.206B(1)), or are not experiencing bankruptcy(S.206B(3)). In order to manage the company more efficiently, directors tend to delegate their powers to certain committees and S.198D provides justification of it. If the delegate breaches the law or obligations, the director is held responsible for these actions(S.190(1)). Unless reasonable grounds, in good faith after proper enquiry delegate reliable and competent in relation to power delegated is performed S.190(2). 

All directors must be diligent to bring the company towards the shareholder’s best interest, and all these regulations are created to maintain this basic purpose.