Section 109 of the Companies Act 1997 is the source of every management power in a company.
Section 109 — management of the company
(1) The business and affairs of a company shall be managed by, or under the direction or supervision of, the board.
(2) The board has all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of the company.
(3) Subsections (1) and (2) are subject to any modifications, exceptions, or limitations contained in this Act or in the company’s constitution.
The alternative is deliberate. A small company’s board may manage directly. A larger company’s board sets strategy, appoints and monitors executives, and supervises — and section 109(1) recognises that as equally proper.
What it does not permit is abdication. Supervision is an active function, and a board that neither manages nor supervises breaches section 115, which requires a director to exercise the care, diligence and skill a reasonable director would exercise in the same circumstances.
Section 109(2) — all necessary powers
The board needs no specific authorisation. Because section 17 gives the company full capacity and section 109(2) gives the board all the powers necessary, the ordinary business decisions of a company require no more than a board resolution:
- issuing shares (s 43) and setting the consideration (s 47);
- authorising distributions and dividends (ss 50, 51);
- buying back shares (s 57) and giving financial assistance (s 63);
- borrowing, giving security and creating charges;
- hiring and dismissing staff, and setting terms;
- entering contracts under section 155 and appointing attorneys under section 156;
- fixing the registered office (s 162) and address for service (s 168); and
- delegating under section 111.
Section 109(3) — the limits
| Limit | Section |
|---|---|
| Major transactions need a special resolution | s 110 |
| Amalgamations, changes of name, constitutional changes and liquidation are for shareholders | s 88 |
| Appointing and removing directors, and appointing the auditor, are for shareholders | ss 131, 134, 190 |
| Powers in Schedule 3 cannot be delegated | s 111 |
| Pre-emptive rights constrain share issues | s 45 |
| Interest group approval is needed for action affecting class rights | s 98 |
| The solvency test gates every payment out to shareholders | ss 4, 50, 56–63 |
| Restrictions in the constitution — but only those the Act permits | ss 17(2), 28, 32(2) |
| The directors’ duties themselves | ss 112–116 |
Under section 18(1), no act of a company is invalid merely because it lacked the capacity, right or power to do it, and under section 19 the company generally cannot assert non-compliance against an outsider. The remedy is internal: the directors breach section 114, and shareholders may seek an injunction under section 142 or leave for a derivative action under section 143.
Shareholders cannot take the wheel
Section 109 puts management with the board, and section 90(3) confirms it: unless the constitution provides that the resolution is binding, a shareholder resolution relating to management is not binding on the board.
Shareholders have voice, information rights and the power to change the board — not the power to direct it. If a constitution does reserve decisions to shareholders, section 107(3) and (4) deem the participating shareholders to be directors for the purposes of sections 112 to 116, so they take the duties with the power.
The board’s power under section 109(2) is held on the terms of Division 3 of Part VIII: to act in good faith and in what the director believes to be the best interests of the company (s 112); to comply with the Act and the constitution (s 114); and to exercise care, diligence and skill (s 115). Section 113 permits regard to the interests of employees in the circumstances there stated, and section 116 governs reliance on information and advice.
Practical points
- Act as a board. Under section 108, the board is directors numbering not less than the quorum acting together — or, in a one-director company, that director. Individual directors have no management power of their own.
- Record decisions. Minutes of board proceedings are part of the company records under section 164.
- Delegate deliberately under section 111, and remember the board remains responsible for the exercise of the power by the delegate unless the statutory conditions are met.
- Test each significant transaction against section 110 (major transaction), section 98 (class rights), and the solvency provisions.
- Do not rely on shareholder approval to cure a duty breach — ratification is governed by section 154, on its own terms.
Sources
- Companies Act 1997 — ss 4, 17–19, 28, 32, 43, 45, 47, 50, 56–63, 88, 90, 98, 107–116, 131, 134, 142, 143, 154–156, 162, 164, 168, 190; Schedule 3
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.