A board that does not sit is not a board.

A holding company in a chain exists to be a separate person: to hold the position below it in its own name, to be resident where it is formed, to be the party to the facility and the joint venture, and to keep the fund above it at one remove from the assets beneath. Its separateness is a set of facts, and the first fact is its board. A board that meets in the company's jurisdiction, on papers addressed to it, decides the company's matters and minutes the decisions is a board, and the company is what its formation documents say. A board whose directors are the manager's staff or a corporate services provider's nominees, who sign what the manager sends, meet nowhere, and ratify after the event, is the fact pattern every reader of the chain is looking for. The tax authority reads it and finds the company resident where the manager sits. The regulator reads it and finds the company an extension of the manager. The buyer reads it and finds a company whose authority for its own contracts is in doubt. The court reads it and finds a company whose separateness can be set aside. A board that does not sit is not a board, and a company without a board is not a separate person wherever it was formed.

This note sets out what the board is for, the three fact patterns that undo it, the residence test and the board's place in it, the regulator's substance requirement, the buyer's authority question, the court's separateness question, what a board that sits does, the directors and their standing, the papers addressed to the company, the decisions that are the company's, the onshore interface, the lender's reading, a comparison, a worked board as a type, cases, what each party holds, the sequence, questions, terms and what to read.

What the board is for

The board is where the company's decisions are taken and the company's mind is found. A company cannot think; its directors think for it, and the company's residence, its compliance with its licence, its authority for its contracts and its separateness from its shareholder each depend on the directors thinking for it rather than for someone else. The board is the company's mind made visible, and the visibility is the minute. A company with a board that sits has a mind in a place; one without has a mind wherever the person who actually decided was sitting.

The three fact patterns

The first is the board of employees: the manager's staff appointed as directors, deciding as the manager's staff, on the manager's instruction, in the manager's office. The company's decisions are the manager's decisions with the company's name on them. The second is the board of nominees: a corporate services provider's staff appointed as directors, signing resolutions the manager's counsel drafts, without reading the papers because there are none, paid by the signature. The company's decisions are the manager's decisions with a stranger's signature. The third is the board that ratifies: directors of whatever standing who are told what was done and resolve that it was done, after the manager did it. The company's decisions are the manager's decisions with the company's later assent. Each pattern is a company whose board did not decide, and each is read the same way.

Why the chain is built and how the board undoes it

A chain of holding companies is built for reasons each layer answers: a treaty between the intermediate jurisdiction and the onshore one, an onshore regime's requirement that the shareholder of an onshore company be a company of a certain kind, a lender's requirement of a single-purpose borrower, a limitation of the fund's exposure to the position's liabilities. Each reason assumes the layer is a separate person, and a separate person has its own mind. A chain built on the assumption and run with boards that do not sit has layers on the registry and none in fact, and every reason the chain was built for fails at the same point: the treaty, because the intermediate company is not resident where it was formed; the onshore requirement, because the shareholder is managed from abroad; the lender's single purpose, because the borrower is the fund's department; the limitation, because the court reaches through. The chain's cost was paid for the reasons, and the board's absence refunds none of it.

The manager's instinct and its cost

The manager's instinct is that the chain is plumbing: the fund decided, and the layers execute. The instinct is efficient and it is the fact pattern. A manager that treats the layers as plumbing has layers whose boards are signatories, and the minutes show it. The instinct is corrected by a question the manager asks at each layer: what is this company deciding, and who is deciding it. If the answer is that the fund decided and this company is signing, the layer is not a company. The correction is a paper per company and a board that reads it, and the cost is a day per transaction per layer, which is the price of the reasons the chain was built for.

The residence test

A company is resident, under most tax regimes, where its central management and control is exercised, and the test is of fact: where the board, as a matter of substance, takes the decisions that matter. A board that sits in the company's jurisdiction and decides there is evidence of residence there; a board of employees in the manager's jurisdiction, or of nominees who sign what the manager decided elsewhere, is evidence of residence where the manager is. The consequence is the treaty position, the withholding, the tax on the holding company's gains and on its distributions, and the chain's economics. A chain designed for the holding company's residence and run with a board that does not sit has the design's economics on paper and the manager's jurisdiction's economics in fact.

The regulator's substance requirement

Register jurisdictions require a company formed there to have substance: directors resident or present, decisions taken there, an office, records kept there. The requirement is the regime's answer to the same fact pattern, and a company that cannot show its board sat has not met it. The consequence is the regime's: a finding, a condition, in some regimes the loss of the company's standing to benefit from the jurisdiction's treaties or exemptions. The fund's regulator reads the holding companies' substance as part of the manager's structure, and a manager whose chain is a row of nominees has a chain the regulator reads as the manager.

The buyer's authority question

A buyer of the holding company or of what it holds asks whether the company was authorised to do what it did: to buy, to borrow, to grant security, to sign the joint venture. The authority is the board's resolution, and a resolution signed by nominees who did not read the papers is a resolution a buyer's counsel reads for whether it was validly passed: was there a quorum, was there a meeting or a valid written resolution, was the director authorised to sign, did the director know what it was signing. A board that ratifies after the event gives the buyer a ratification, which cures what it can and not what it cannot. The buyer prices the doubt.

The court's separateness question

A court asked to set aside a company's separateness, to reach its shareholder for its liabilities or its assets for its shareholder's, looks at whether the company was run as a separate person or as a department of the shareholder. The board that did not sit is the evidence for the second, and the court that finds it may treat the company's contracts as the shareholder's, its assets as the shareholder's, and its liabilities as the shareholder's. The fund above the chain is the shareholder, and the chain's purpose was to keep the fund at one remove.

What a board that sits does

It meets, on notice, at a stated frequency and when a matter needs it, in the company's jurisdiction with a majority present there. It receives papers addressed to the company, prepared by the manager as the company's adviser, in time to read them. It discusses, asks, conditions and decides. It declares interests and abstains. It minutes the five things and attaches the papers. It approves the company's accounts, its filings and its budget. It appoints the company's auditor, its bankers and its counsel. It decides the company's matters because they are the company's, and the manager, which has the information and the recommendation, is in the room as the adviser and not as the decider.

The directors and their standing

A director of standing is one who can decline the manager's recommendation and be believed to have done so: a person with experience of the kind of company and the kind of asset, resident or regularly present in the jurisdiction, with a reputation to keep and no employment by the manager. Independent directors of that kind cost an annual sum the manager would rather not spend, and the cost is the price of a board. A board of two independent directors of standing and one manager's nominee, with the independents in the majority and present in the jurisdiction, is a board; a board of three nominees from a provider is a signature service. The constitution fixes the number and the residence, and the manager's choice fixes the standing.

The papers addressed to the company

The investment paper the fund's committee read is the fund's paper. The holding company's board needs its own: what this company is asked to do, why it is in this company's interest, what this company's risks are, what this company's alternatives were, and what this company's counsel advises. A paper addressed to the fund and forwarded to the holding company's board is a paper the board did not receive as its own, and a minute that records the board's consideration of the fund's paper records the board deciding the fund's question. The manager prepares a paper per company, and the difference between them is the difference between the companies.

The decisions that are the company's

Every decision in the chain is taken at the layer whose decision it is. The fund decides to invest; the intermediate holding company decides to subscribe for the onshore company's shares and to borrow; the onshore holding company decides to enter the joint venture; the joint venture decides to buy the parcel. Each is a separate decision by a separate board on separate papers, and each minute records the board deciding its own company's matter. A chain whose lower boards minute that they act on the instruction of the company above has minuted that they did not decide, and a chain whose every decision is minuted at the fund and executed below has one board and several signatories.

The onshore interface

An onshore holding company or joint venture in a register jurisdiction has directors the onshore regime requires to be resident, licensed or registered, and a board that meets there under the onshore companies law. The onshore board's sitting is the onshore substance, and the fund's nominee directors on it are present in the jurisdiction for the meetings or the onshore regime reads the company as managed from abroad. The developer's director declares and abstains on the developer's dealings. The onshore board is the most-read board in the chain, because the onshore tax authority, the onshore regulator and the onshore registrar each read it.

The lender's reading

A lender to the holding company takes security from it, and the security's validity is the board's authority. The lender's counsel reads the board's resolution for the quorum, the means, the declarations and the directors' knowledge of what they authorised, and a lender that finds a board of nominees signing a resolution they did not read requires a board of standing before it lends, or a guarantee from above. A lender to the onshore company reads the onshore board's sitting as the onshore security's validity, and the onshore regime's requirements for the board are the lender's conditions.

By reader · by fact pattern	The board of employees	The board of nominees	The board that ratifies	The board that sits
The tax authority	Resident where the manager is	Resident where the decisions were made, elsewhere	Resident where the decisions were made, before the board	Resident where it sits
The regulator	An extension of the manager	No substance	Substance in form only	Substance
The buyer	Authority doubtful, manager's decision	Authority doubtful, unread resolutions	Ratification, cures what it can	Authority clean
The court	A department of the shareholder	A department with strangers' signatures	A department that assented later	A separate person
The lender	Security doubtful	Security doubtful	Security ratified	Security valid

A board, as a type

A fund in a register jurisdiction forms an intermediate holding company in another jurisdiction chosen for its treaty with the onshore jurisdiction, and an onshore holding company there. The intermediate company's board is two independent directors of standing resident in its jurisdiction and one manager's nominee; it meets quarterly and on each transaction, in its jurisdiction, with the independents present, on papers addressed to it; it decides its own matters, declines a bridge the manager proposed until the terms were compared, and minutes everything. The onshore company's board is two onshore-resident directors and the fund's nominee, who travels for each meeting; it meets onshore under the onshore companies law and approves the joint venture on its own paper with the onshore regime's approvals attached. The tax authority of the manager's jurisdiction enquires in year three and reads the intermediate company's minutes. The onshore tax authority reads the onshore board's. The buyer in year seven reads both chains of authority. Each company was what it was formed to be, because its board sat.

The structure paper's page

The structure paper carries a page on the chain's boards: each company, its jurisdiction's residence and substance rules, its directors and their standing and residence, the quorum and the place, the frequency of meetings, the papers per company, the manager's seat as adviser, the minute's form and keeper, and the decisions each layer takes. The page is written at the chain's design because the directors' appointment is a formation decision, and it is the page the lender's counsel reads before the first security.

The corporate services provider's place

A corporate services provider in the intermediate jurisdiction keeps the registered office, the books and the filings, and may supply a director; it is part of the substance and not the whole of it. A provider's director on a board with independents of standing, present for the meetings and reading the papers, is a director; a provider's three nominees signing by circulation is the second fact pattern. The provider's engagement is for administration, and the board's standing is the fund's appointment, and the two are not confused by a manager that read the residence advice.

The second fund's reading

A manager's second fund is raised with a chain the first fund's readers have already tested: the tax authority's enquiry, the lender's security, the buyer's diligence. A first fund whose chains passed each reading is a manager whose second fund's anchor accepts the same design and the same directors; one whose intermediate company was assessed as resident in the manager's jurisdiction is a manager whose second fund's anchor asks who will sit on the boards. The chain's boards are the manager's record, and the independent directors who declined a bridge in year two are the record's best page.

The frequency and the substance between meetings

A board that meets quarterly and on each transaction has a rhythm the minutes show, and between meetings the company's business is conducted by its officers under the board's delegations, which the board fixed and minuted. A delegation to the manager to act for the company within limits is a board's decision and is read as one; a delegation of everything is the first fact pattern by another route. The board fixes the limits, reviews the actions within them at each meeting, and minutes the review, so that the substance between meetings is the board's as well.

Four cases, as types

A chain's intermediate holding company has three directors who are the manager's staff in the manager's jurisdiction. The tax authority there reads the minutes, which show meetings at the manager's office, and assesses the holding company as resident; the treaty position the chain was designed for is lost and the onshore withholding on the distributions is the fund's.

A chain's holding companies have nominee directors from a provider who sign written resolutions drafted by the manager's counsel. The buyer's counsel at exit reads resolutions with no papers, no meetings and no declarations, requires a ratification by a reconstituted board before completion, and discounts the price for the risk the ratification does not reach the security the lender took in year two.

A chain's boards ratify quarterly what the manager did in the quarter. A holder's claim against the fund reaches the holding companies' assets on the court's finding that the companies were run as the fund's departments, and the chain's one-remove is gone.

A chain's boards sit, in their jurisdictions, on their own papers, with independents of standing, and minute. The tax authority, the regulator, the buyer, the court and the lender each read what they need.

What each party holds

The fund holds the chain's design and the decision to appoint directors of standing.

Each board holds its own decisions, on its own papers, in its own place, minuted.

The directors hold their standing, their residence, their declarations and their engagement terms.

The manager holds the papers it prepares for each company as its adviser, and its seat in the room as adviser.

Counsel holds the residence advice, the substance requirements, and the chain of authority.

The lender and the buyer hold their readings.

Where it surfaces

It surfaces at the chain's first transaction, when the manager sends the fund's investment paper to three boards and three boards sign. It surfaces at the lender's first security, when the lender's counsel asks for the board's resolution and reads the directors' names. It surfaces at the intermediate jurisdiction's substance filing, when the company must state where its board met. It surfaces at the manager's own tax authority's enquiry, which asks where the holding companies are managed. It surfaces at the onshore regulator, which asks whether the onshore company's directors were present. It surfaces at the buyer's diligence, which reads the chain of authority. And it surfaces at the court, when a holder's claim reaches for the chain's assets.

The cost of getting it wrong

A board that does not sit costs the chain its residence, and the residence is the treaty, the withholding and the tax on exit. It costs the lender's security its validity and the lender's confidence. It costs the buyer's price. It costs the fund its one-remove from the assets' liabilities. And it costs the manager the regulator's reading of its whole structure as a row of nominees. The cost of a board that sits is two independent directors per layer and a paper per decision, and a manager that compares the two costs before forming the chain forms it with boards.

The director's own reading

A director of standing reads each paper for the company's own interest, and the company's interest is not always the fund's. A holding company asked to guarantee the fund's facility, to lend its cash upstream, to distribute when its own creditors are unpaid, or to enter a joint venture on terms good for the fund and bad for the company, has a board whose duty under the companies law is to the company, and a director that signs against the company's interest has breached it. The director declines, conditions or requires the company's own counsel, and the minute records it. That is the board's independence made visible, and it is the evidence that answers every reader's question at once.

A timeline, as a type

At the chain's design local counsel in each jurisdiction advises on residence and substance, and each company's constitution fixes the quorum and the place. At formation each board is constituted with an independent majority present in its jurisdiction. At the first acquisition the manager prepares four papers and four boards decide in four places. At the first facility the lender's counsel reads four resolutions with quorums, declarations and papers. In year two the intermediate company's board declines a bridge until the terms are compared and minutes the condition. In year three the manager's tax authority enquires and reads the minutes. In year four the onshore regulator inspects the onshore board's attendance. In year seven the buyer reads the chain of authority in a day. In year nine a holder's claim against the fund stops at the fund, because the chain's companies were companies.

The sequence

1. The chain is designed with each company's residence and substance requirements read by local counsel.
2. Each board is constituted with a majority of directors of standing resident or present in the jurisdiction, and the constitution fixes the quorum and the place.
3. The manager prepares papers addressed to each company for each decision.
4. Each board meets in its place, decides its own matter, declares and abstains, and minutes.
5. The minutes and papers are kept by the administrator per company.
6. The committee reads the chain's related-party minutes quarterly.

Questions a manager asks

How much does a board of standing cost. Two independent directors' annual sums and the meetings' cost per company per year; against the treaty position, the security's validity and the exit's price.

Can the manager's nominee chair. The chair is the board's choice; a manager's nominee as chair of a board with an independent majority is a board, and as chair of a board of nominees is the manager.

Must the independents be resident. Present in the jurisdiction for the meetings at least; resident is stronger evidence; the local regime's substance rules fix the minimum.

What about urgent decisions. A board that sits can meet at short notice by the means the constitution permits, with a majority in the jurisdiction; the minute records the urgency and the means.

Does the board need its own counsel. On matters where the company's interest and the fund's may differ, yes; on routine matters the manager's counsel advises the company as its counsel under a separate engagement.

How does the board decline the manager. By conditioning or declining a recommendation and minuting why; a board that has never declined has never been tested, and a minute of a condition imposed is the board's evidence.

Terms used

Board that sits: a board that meets in the company's jurisdiction, decides its own matters on its own papers, and minutes.

Board of employees, of nominees, that ratifies: the three fact patterns in which the board did not decide.

Central management and control: the residence test answered by where the board decides in substance.

Substance: the regime's requirement of directors, decisions, office and records in the jurisdiction.

Director of standing: an independent director with experience, residence or presence, and a reputation, able to decline.

Papers addressed to the company: the manager's paper for each company on its own decision.

What to read

Each company's constitution on meetings, quorum and place; local counsel's residence and substance advice; the boards' minutes and papers; the directors' engagement letters; the lender's conditions on the board. On this site, the holding room under Structures, the governance room under Where complexity arises and the worked cross-border platform.