Decision Making Process in Board Room - Private Ltd Company

The board room or board of director's room is, in a real sense, a brain of the company. Just like a brain helps to manage our body functioning, the director's board runs the company.

Lawmaker are always tweaking the laws related to board structuring and their decision-making power. In big corporate houses, a major chunk of the board structure is outsider, not the company's owner. They are professional minds who are experts in their domain.

Decision-making process:

How the board of directors thinks and take decisions usually dont face investor or regulatory review. But whatever they do, that has to be recorded in the minutes of the meeting in the form of the resolution called board resolution.

Our lawmaker always requires and reinforces that board resolution or other resolutions passed at Annual General Meeting (AGM) or Extra-Ordinary General Meeting (EGM) must contain the notes or some explanatory statement to state the reason and thought-process to arrive at a decision.

The Indian Companies Act, 2013 delineates some of the decisions or key issues which the board of directors could decide. These matters have been codified under section 179.

The followings are some of the business decision which the board of directors can take:

1.    Demand the call money unpaid on the shares from the company's shareholders.

2.    To buy back the shares of the company.

3.    Raise funds through shares or debenture.

4.    To take a loan.

5.    To invest the funds of the company.

6.    To approve the financial statements and the board's report.

7.    To diversify the business of the company.

8.    To approve amalgamation, merger or reconstruction.

9.    To acquire another company.

10.    To make political contribution.

11.    Appointment of directors, company secretary, first auditor of the company.

12.    To appoint internal or secretarial auditor of the company.

All these decisions can be taken by the board of directors only by means of the board resolution passed at the board meeting.

Sometimes, due to the criticalness of the transaction, a committee is formed to decide the matter in depth. Committee can do this because all the directors are not the expert in all the fields, therefore board of directors amongst themselves create a small committee which can analyse the assigned work in more detail. This process is called delegation of the power taken by almost all the large companies.

The decision discussed over even can not be taken independently too. If the transaction significantly affects the company, the shareholder also considers such investment decisions at the general meeting as per section 180 of the Companies Act, 2013.

Nevertheless, for private limited companies, none of the matters cited earlier are not required to be placed before shareholders as stated in the notification issued on 5th June 2015.

At the end, every board will have its problems making decisions, as will any group made up totally of leaders; however, with a little intervention, the board can make the best decisions possible. A board that works as a team will be able to handle any tough decision without any conflict. Your board of directors can work smoothly together and create a successful cooperative by fostering good team building skills into the board room.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.