Why Is A Quorum Necessary At Board Meetings? | Independent Newspapers Limited
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Why Is A Quorum Necessary At Board Meetings?

Posted: Jun 11, 2015 at 12:01 am   /   by   /   comments (0)

For a board meeting to be valid and the decision taken at the meeting to be binding on the company, the board meeting must be properly constituted; otherwise the decision would be invalid and not bind the company.

A quorum at a meeting of directors must be present not only at the beginning of the meeting, but throughout the meeting. If there is a quorum at the beginning of a meeting but some of the directors leave the meeting so that the number of the remaining directors is reduced below what is required to constitute a quorum, any subsequent resolution will be invalid.


Maximum Quorum

In prescribing a quorum for a board meeting, section 264(1) of the Companies and Allied Matters Act (“CAMA”) provides that the quorum necessary for the transaction of the business of the directors of any public or private company shall be two where there are not more than six directors. But where there are more than six directors, the quorum shall be one-third of the number of directors, and where the number of directors is a multiple of three, then the quorum shall be one-third to the nearest number. For example, if a company has 10 directors, the quorum for its Board meetings will be 4 (3.66 rounded off to 4).

A quorum in any company cannot be less than two, even if the company has only two or three directors. A minimum of two directors is a must for a quorum. One director does not make a quorum, nor can one director function as the power of attorney holder at a meeting. Though what constitutes quorum is generally fixed by the articles of a company, in view of the specific wording of section 264(1) of CAMA, no company by its articles can provide for less than two directors as quorum. Such a provision would be repugnant and void.

The “number of directors” in Section 264(2) of CAMA means the total number of directors for the time being actually occupying the position in the company as directors regardless of the number of maximum number of the directors as stipulated in the articles (excluding alternate directors, if any). Section 264 of CAMA only sets down a minimum quorum. It does not forbid a company to fix a higher quorum. A company in its articles cannot provide a quorum of less number of directors than what is provided in s 264(1) of CAMA. However, it can provide  for a higher number. Likewise, the articles may provide that to constitute a quorum, the presence of a particular director or a group of directors must be present.


Disinterested Quorum

At every board meeting during the passage of every resolution, there must be “disinterested quorum”. Therefore, in calculating the quorum, all interested directors must be excluded. An interested director is a director whose presence cannot be counted for the purpose of forming a quorum at a meeting of the board, at the time of the discussion or vote on any matter in which the director is interested.

An interested director is prohibited from taking part in the discussion of, or vote on, any contract or arrangement at a board meeting. A director, who cannot participate in the discussion or voting on any matter before the meeting because of his interest, cannot be counted in the quorum at the time of the discussion or voting on that matter. But that will not debar such a director from being counted for the purpose of quorum with respect to any other matter in which he is not interested. This is called ‘disinterested quorum’. Every resolution at a board meeting must be passed by disinterested quorum.

If at a meeting the number of interested directors in relation to any resolution exceeds or is equal to two-third of the total number of directors on the board, the number of the disinterested directors will be the quorum for such resolution; however, such number must not be less than two. A quorum of two directors means a quorum of two directors who are competent to transact and vote on the business before the board.


The Remedy When Quorum Not Present

If at a board meeting, all the directors, or more than two-third of them, are interested in a resolution, the remedy in such cases may be to increase the strength of the board by appointing one or more additional directors if so authorized by the articles who are not interested in the said resolution. If this is not found practicable, it would be desirable to place the matter before the general meeting for consent.

If there is difficulty in obtaining a disinterested quorum, or if a director refuses to attend board meeting and his absence makes it impossible to secure a quorum, or the board is unable to act because a quorum cannot be formed, the shareholders may act in place of the board.


Adjournment of Board Meeting for Want of Quorum

The provisions in Section 264 of CAMA regarding the quorum for a board meeting are mandatory and a decision taken or a resolution passed at a meeting where proper quorum is not present is void. If there is a stalemate because the total number of directors of a company is reduce below the minimum required to make up a quorum, the continuing directors may act despite any vacancy in the board.

If a board meeting could not be held for want of a quorum, it would not be deemed to be a contravention of the requirement regarding the minimum number of board meetings required to be held. This relation would be available only if a board meeting cannot be actually held, as scheduled, for want of quorum and in no other event.