Private Companies are required by the Companies Act (Cap. 386 of the Laws of Malta) to have at least one director whilst public companies are required to have a minimum of two directors.
The Memorandum of Association of each company regulates the minimum and maximum number of directors that the company may have. This particular clause should be worded in a manner to provide flexibility for the company to appoint and remove directors as may be expedient from time to time.
For instance, it would be ideal to state that the company shall have a minimum of one and a maximum of five directors. Such wording would allow the company to appoint additional directors or remove directors (provided that there is always at least one director) without having to update and amend its Memorandum and Articles of Association.
Regulations within the Companies Act
Proceedings of board meetings are mostly regulated by the Articles of Association as the Companies Act itself does not provide too many regulations. Having said so, one may find some guidance on the proceedings of board meetings in the Model Regulations within the Companies Act.
The Model Regulations provide basic and general regulations on the manner of proceedings of board meetings, however, it is advisable that each company makes use of such regulations as a basis and then build upon them to cater for the company’s model accordingly.
The Articles of Association
On incorporation, a company must submit to the Malta Business Registry a Memorandum of Association and it may also include Articles of Association. Should a company decide not to file its own Articles of Association, the Model Regulations will automatically apply.
This explains why the Model Regulations are drafted in a very general and broad way, however, this also means that they may not cater for specific formalities and/or conditions which may be required by different business models.
The first subscribers of the Memorandum and Articles of Association should ensure that the Articles of Association include a section regulating the proceedings of board meetings. Through such clause, the subscribers may regulate the manner in which meetings take place according to the needs of the specific business.
How many board meetings should a company hold each year?
The Companies Act does not impose any statutory requirement on companies to hold a specific number of board meetings per year, however, the legislator has indirectly catered for the need of holding board meetings. This stems from the duties of the directors set out in Article 136A(2) of the Companies Act, specifically that of promoting the well-being of the company and being responsible for the general governance of the company and its proper administration and management and the general supervision of its affairs.
In order to adhere to such duties and ensure corporate governance, the directors would need to hold board meetings to discuss important decisions of the company before such decisions are duly taken.
Convening of Board Meetings
The Model Regulations provide that a director may, and the company secretary on the requisition of a director shall, at any time summon a board meeting. Therefore, unless the Articles of Association state otherwise, a board of directors meeting may be convened at any given time.
Furthermore, the Model Regulations do not stipulate any timeframe for the issuance of notices convening a board meeting. Nevertheless, most Articles of Associations do prescribe a notice period for a board meeting to be considered as duly convened.
Both the Companies Act and the Model Regulations are silent in respect of what should be listed on a notice convening a board meeting. Nonetheless, it is in the interest of the directors themselves to issue a proper notice with details of the date, time and location of the meeting and the business to be discussed together with any resolutions that may need to be passed.
What matters should be discussed during Board Meetings?
To start with, a board meeting should first reach a quorum before commencing. The Companies Act does not stipulate a quorum, however, the Model Regulations state that the quorum required during a board meeting may be fixed by the directors, and unless fixed, it shall be two. The Articles of Association may list a different quorum based on the number of directors that the company might have.
There are no limitations as to what might be discussed during board meetings, it is generally any matters which are not exclusively reserved by the Companies Act or the Articles of Association for the shareholders’ decision at a general meeting.
For instance, the Companies Act stipulates that the accounts should be approved by the directors, and therefore, that would be one of the matters that should be discussed during a board meeting together with the recommendation of dividend distribution.
Is there a requirement for board meetings to be held in person?
Whilst there is no specific requirement at law for board meetings to be held in person, for substance requirements and management and control purposes, board meetings should be held in Malta.
There are cases wherein circumstances would make it impossible for meetings to be held physically in Malta, such as the current Pandemic we are living through. The restrictions in place throughout the world to mitigate the spread of Covid-19, specifically social distancing and flight restrictions, made it impossible for some boards to hold physical meetings.
Unless the Articles of Association specifically restrict the holding of board meetings digitally, such meetings are permitted at law and are being encouraged throughout the Pandemic to ensure business continuity.
When board meetings are held digitally, the company secretary must ensure that the medium being used is a secure medium wherein the directors would feel comfortable to discuss business matters freely.
It goes without saying that the obligation imposed by the Act on the company secretary to record the minutes of the meeting in writing and keep such minutes in a minute book would still be applicable for meetings held digitally.
Minute taking is essential not simply because it is a requirement by law, but more so because it provides transparency within the board of directors. If at any point in time directors are asked to substantiate any decision taken by them, the minutes would help to back up the reasoning behind such decision.
The company secretary should make sure to make a reference to manner in which the meeting is held, whether digitally or in person. The minutes of each meeting are usually approved at the subsequent meeting of the board of directors.
What happens if there is a tie in relation to a resolution taken at a board meeting?
The Model Regulations provide that the directors may elect a chairman of their meetings. It adds that in cases wherein no chairman is elected, the directors present for the meeting may appoint one of the present directors to act as chairman of the meeting.
The chairman’s role is not specified at law, however, it must be ensured that the chairman provides strength and support across the board, keeps the board united, and is resilient.
In cases wherein an equality of votes occurs, the chairman will have a casting vote.
Resolutions of the board of directors taken in writing
The Companies Act provides that a private company may, instead of passing a resolution during a general meeting, pass a resolution in writing. However, it does not specify whether a resolution may be taken in writing instead of during a board meeting.
On the other hand, the Model Regulations provide that a resolution in writing, if signed by all the directors entitled to receive notice of a meeting of the directors, shall be as valid and effectual as if it had been passed at a meeting of the directors duly convened and held.
Therefore, this means that unless the Articles of Association state otherwise, a resolution of the board of directors taken in writing is as valid and effective as if it had been taken at a board meeting.
Resolutions of the board of directors might be taken in writing for several reasons. One of which is the fact that a company may have only one director. In such cases, the director will not need to hold a meeting since there are no other directors with whom he will be discussing decisions. Therefore, in such circumstances, resolutions are taken in writing for business transactions to take place effectively.
Another reason why a company might want to opt for resolutions in writing is when a time sensitive decision needs to be taken. Convening a meeting may prove to be time consuming whilst if the board members are all in agreement with the specific matter, a resolution in writing would take less time to be prepared, circulated, and issued.
Electronic signatures on board resolutions are permitted by law, however, it is suggested that a clause in the Articles of Association specifying the consent for the use of electronic signatures is included to avoid any misinterpretation.
Conclusion
The legislator left proceedings of board of directors’ meetings to be predominantly regulated by the Articles of Association to allow each company to adapt such regulations for its business model and exigencies.
Although companies are permitted to regulate the proceedings of board meetings as they consider appropriate, it is of utmost importance to allow directors a certain degree of flexibility to be able to regulate meetings as they deem fit.
Whilst the legislator did not include any statutory requirement on the number of board meetings to be held each year, one of the most basic rules of corporate governance is ensuring that the company holds regular meetings.
Therefore, holding board meetings throughout the year is essential for a company to operate smoothly, efficiently and, most importantly, successfully.
Disclaimer: The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet up with any of our representatives to seek further information, please contact us for an appointment.