Drafting Board Regulations: what belongs in them

Drafting management regulations involves establishing the board's working methods without violating the law and the articles of association: division of tasks, decision-making, quorum, mandates, approval decisions, and the handling of conflicts of interest. The articles of association form the overarching layer, while the regulations provide operational details. Therefore, always start with the articles of association and build the regulations upon them to ensure the hierarchy is correct and the agreements hold up.

The short answer

1. Read the articles of association: review what has already been arranged regarding representation, decision-making, and approvals.
2. Divide the tasks: determine which administrator manages which area.
3. Regulate the decision-making: quorum, voting ratio, and the deadlock.
4. Establish mandates: amounts above which a joint or shareholders' resolution is required.
5. Conflict of interest rule: in line with Art. 2:239 paragraph 6 of the Dutch Civil Code.
6. Check against law and articles of association: ensure that nothing conflicts with mandatory law or the articles of association.

Drafting Board Regulations: Start with the Articles of Association

Regulations that disregard the articles of association are ineffective on those points. Therefore, the first step is always to read the articles of association. Check what is stated regarding the method of representation (individual or joint), which decisions require the approval of the general meeting, and whether a right of instruction has already been included. Do not repeat in the regulations what the articles of association mandatorily regulate, or refer to it.

Pursuant to Article 2:239, paragraph 1, of the Dutch Civil Code, the Board is charged with management, subject to limitations in the articles of association. The regulations may further divide and operationalize that management task, but they cannot remove the statutory task or shift it to a single director in a manner that eliminates collective responsibility.

Division of tasks and mandates

The core of regulations is the division of tasks. Specify for each director which area of ​​focus they manage, for example, finance, operations, or commerce. This division is not only practical but also plays a role in liability: in the event of a dispute, a written division shows who was responsible for what.

Link clear mandates to the division of tasks. Determine the amount up to which a director may independently enter into obligations, the amount above which a joint board decision is required, and which decisions require shareholder approval. Consider investments, loans, long-term contracts, hiring or dismissing personnel in key positions, and entering into lease obligations. Concrete amounts prevent later disputes.

Decision-making and quorum

Rule how the board makes decisions. The key points:

• Quorum: the number of directors that must be present for a valid decision.
• Voting ratio: simple majority or, for major decisions, unanimity.
• Tie in votes: what happens in the event of a tie, for example a casting vote or submission to the shareholders.
• Decisions outside of meetings: or decision-making by email or in writing is permitted.
• Reporting: how decisions are recorded and preserved.

Beware of the deadlock arising from a board consisting of two equally qualified directors. Without an arrangement, the board can grind to a complete halt. A deciding vote should not simply belong with a single director, as this can skew the balance. Submitting the matter to the general meeting is often a more neutral solution.

Conflict of interest

Article 2:239, paragraph 6 of the Dutch Civil Code stipulates that a director with a direct or indirect personal interest that conflicts with the interest of the company may not participate in the deliberation and decision-making regarding that subject. If, as a result, no board resolution can be adopted, the Supervisory Board shall adopt the resolution, or in the absence thereof, the General Meeting, unless the Articles of Association provide otherwise.

Incorporate this provision into the regulations and outline how a director reports a potential conflict of interest. Consider situations where a director is also a shareholder at a supplier or hires a family member. A clear reporting procedure prevents a decision from proving challengeable at a later stage.

Practical example

A growing e-commerce company is adding a third director for logistics. The founders want to prevent conflicting decisions. In their board regulations, they stipulate that the logistics director may independently enter into obligations up to 20,000 euros, that contracts exceeding this amount require a majority vote, and that a new warehouse lease always requires shareholder approval. They are also including a disclosure obligation for conflicts of interest, because one of them holds an interest in a transport company.

Honest recommendation

If you manage a BV alone, you rarely need to draft a board of directors' regulations. The law and the articles of association provide sufficient coverage in such cases. Even with a small board with clear, established agreements, a short, self-drafted version based on a good template is often sufficient.

As soon as there are multiple directors with differing interests, or shareholders who are detached, it pays to have the regulations aligned with the articles of association. The biggest mistake is regulations that are separate from the articles of association and conflict with them in certain respects, because those parts then do not apply. A legal expert who compares both documents keeps the hierarchy clear, formulates the mandates precisely, and ensures that the conflict of interest rules comply with Article 2:239, paragraph 6 of the Dutch Civil Code.

Want to read more? View the management regulations product page, first read what management regulations are and see what it costs to have management regulations drafted.

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