The Difference Between the Effectiveness of Administrative Resolution and Board of Directors’ Resolutions Under the Egyptian Companies Law
Resolutions constitute a fundamental pillar in the operation of any entity, whether administrative or commercial. The resolution making process is considered the core of success for any entity, whether a small startup company or a large multinational company. resolutions are made at various levels within a company’s organizational structure, and each level has its own powers, responsibilities, and legal implications.
The nature of such resolutions varies depending on the issuing authority and the legal consequences arising therefrom. This requires a precise understanding of the distinctions between administrative resolution, resolutions of the Board of Directors, and those issued by the General Assembly, through the regulatory framework established by the Egyptian Companies Law No. 159 of 1981 and its amendments.
It is worth noting that understanding the fundamental differences between these types of resolution is important for anyone participate in the management or the analysis of companies. Each type of resolution defines the scope of authority, the nature of the matters it addresses, and its potential impact on the company and its stakeholders.
The Importance of Distinguishing Between Types of Resolutions
Distinguishing between an administrative resolution, a board of directors’ resolution, and a general assembly resolution carries significant practical importance, as it affects the following:
- The procedure by which the resolution is made;
- The legality of the resolution and its ability to appeal;
- The nature of the legal liability on the issuing authority.
Failure to recognize the deference may result in the issuance of invalid or non-binding decisions, or being appealed by shareholders or other concerned parties.
The Impact of Proper Understanding of the Distinction on Institutional Workflow
A clear understanding of the boundaries and authorities associated the decisions contributes to the following:
- Enhancing administrative and executive performance;
- Preventing conflicts of jurisdiction;
- Promoting the corporate governance within the company;
- Avoiding legal liability arising from exceeding delegated powers.
The Legal Framework Governing resolutions in the Egyptian Companies
1- Companies Law No. 159 of 1981
This law regulates all aspects related to the incorporation of Joint Stock companies, the responsibilities of management, and the respective jurisdictions of the general assembly, the board of directors, and executive managers.
2- The Executive Regulation of the Law
The Executive Regulation elaborate on the mechanisms for implementing decisions, the conditions for their validity, and the procedures for their approval and documentation, thereby providing a comprehensive framework that defines the type and nature of each resolution.
Firstly: Administrative resolution
The Legal Nature of Administrative resolution:
An administrative resolution is a legal act issued by an internal administrative authority within the company (such as the CEO or the HR Manager), aimed at regulating daily or internal operations. Administrative resolution constitutes the backbone of daily company operation, typically made by executive or administrative managers at various departments starting from the managers till the CEO in some operational matters. These resolutions primarily focus on implementing established strategies, enhancing operational efficiency, and managing daily resources.
For instance, the HR Manager may decide to hire a new employee or amend the attendance policy, while the Production Manager may decide to enhance a production line or procure specific raw materials.
The administrative resolution revolves around the day-to-day and operational matters that fall within the authority of the management. This includes, for example, signing contracts for the sale of company assets, purchasing land, dealing with the company’s clients, making hiring decisions, and so on. Articles 120 to 128 of the Companies Law No. 159 of 1981, as amended by Law No. 4 of 2018, regulate the powers of managers to make decisions through administrative resolutions.
The advantages of administrative resolutions:
- Repetitive: Issued on a daily or weekly basis to manage ongoing operations.
- Operational: Focused on daily details and the smooth functioning of activities.
- Limited in Scope: Directly affects relevant departments or teams with mostly short- to medium-term impacts.
- Flexible and Prompt: Often requires swift action and adaptability to changing work conditions.
The authority to issue administrative resolution is derived from the delegation granted to managers by the Board of Directors or senior management. These decisions are essential for maintaining operational continuity and achieving tactical goals within the company’s broader strategic framework.
Characteristics of Administrative resolution:
- Individual or organizational.
- Subject to administrative appeal.
- Typically, does not require approval from the General Assembly or the Board of Directors.
- Limited impact on the institutional structure.
Secondly: resolution of the Board of Directors
The legal Definition:
The resolutions are issued by the company’s board of directors within the scope of its powers as set forth in the company’s Articles of Incorporation or by law.
The board of directors represents the apex of the corporate oversight structure and bears responsibility for the company’s overall strategic direction. Its decisions are strategic in nature, carry long-term effects, and address core issues that impact the company’s future.
A board typically consists of both executive members (from senior management) and non-executive members (external to the company), offering a combination of internal expertise and independent external perspectives.
Powers Granted to the Board of Directors, whereas the board of directors resolutions may cover a wide critical matter, including:
- Defining the company’s vision, mission, and strategic objectives;
- Approving major strategic and operational plans and annual budgets;
- Appointing and overseeing the CEO and senior executives, and determining their compensation;
- Approving major mergers, acquisitions, or the disposal of key assets;
- Adopting financial policies, such as profit distribution, bond and share issuance, and budget approval;
- Overseeing risk management and legal/regulatory compliance;
- Establishing the company’s governance structure and ensuring transparency and accountability;
- Calling for General Assembly meetings.
Board resolutions are typically adopted after thorough discussion and careful review of available information, and usually require a majority vote of the attending members.
These resolutions shape the company’s overall direction, ensuring long-term success and protecting stakeholders’ interests. The board bears a fiduciary duty toward shareholders, meaning that its decisions must always serve the best interest of the company and its shareholders.
Characteristics of Board Resolutions:
- Collective in nature and issued during formal meetings;
- Subject to legal procedures and constraints;
- May have extended and external effects;
- Documented in official minutes.
Thirdly: Fundamental Differences Between Administrative Resolutions and Board Resolutions
Fourth: Interaction and Relationship Between the Two Types
Complementary cases:
A board resolution delegating powers to the General Manager followed by administrative decisions issued by the manager.
A board resolution approving major appointments implemented via subsequent administrative decisions.
Conflicting cases:
An administrative decision exceeding the board’s authority (e.g., signing agreements beyond the manager’s powers).
The board issuing internal administrative decisions without complying with legal or regulatory requirements.
Fifth: Legal Aspects and Liability
Liability for Administrative Decisions: Shall be assumed by the responsible person or the manager, in accordance with the company’s internal regulations.
Liability for Board Resolutions: Shall be assumed jointly with board members if the resolution results in harm to the company or its shareholders.
Sixth: Appeal and Nullification of the resolution
Can Administrative Resolutions be Appealed?
Yes, administrative resolution may be appealed before the Administrative Judiciary or the State Council if they are procedurally flawed or constitute an abuse of power.
Grounds for Nullifying Board Resolutions:
- Violation of the articles of Incorporation or applicable laws.
- Issuance of resolution outside the board’s powers.
- Conflict with resolutions of the general assembly;
- Undisclosed conflicts of interest.
Conclusion
Understanding the distinctions between administrative decisions and board resolutions is not merely theoretical—it is essential for ensuring the legality of corporate governance and management. Pursuant to Companies Law No. 159 of 1981, respecting the boundaries between day-to-day operational decisions and high-level strategic resolutions is key to maintaining company stability and safeguarding it against invalidity and legal liability.