The Different Types of Company Resolutions
First of all, what are company resolutions? These are the legally binding decisions made by members or directors of a company. They are required when you need to make a formal decision on a matter which is outside the day-to-day operations of the company. For example, you would need to have a resolution in place to remove or appoint a director, but not if you want to change suppliers.
Typically, for a resolution to be passed, you will need to have a majority vote from the members at a general meeting, or from the directors at a board meeting, however, it is also possible to pass resolutions in writing instead.
The different types of company resolutions are:
- Ordinary resolution of members
- Special resolution of members
- Written resolution (can be ordinary or special) of the members
- Directors’ resolution (also known as “board resolution”)
- Directors’ written resolution
The decision-making rules and procedures that must be followed by a limited company are set out in the Companies Act 2006 and in your articles of association. Some companies also choose to clarify some of the information in a shareholders’ agreement. You should refer to all relevant information in the first instance.
Ordinary resolution of members
These are used for routine matters that require approval from a majority of members (e.g. above 50%). Ordinary resolutions are normally proposed and voted on at general meetings. Votes are usually cast by a show of hands or on a poll. In some cases, it is also possible to pass it in writing.
Depending on the share set-up of your company, some shareholders may hold more than one share and therefore be entitled to more than one vote. This is why resolutions are passed based on the number of votes rather than just the number of members.
The resolutions are normally used in the following circumstances:
- Appointing a director
- Removing a director
- Appointing or removing a company secretary
- Granting additional powers to directors
- Approving directors’ loans
- Making changes to a director’s contract
- Authorising dividend payments
- Increasing share capital
- Authorising the company to purchase more of its own shares
Some companies may specify in their articles of association that certain decisions normally requiring an ordinary resolution must be passed by a special resolution instead. So check your articles before passing resolutions.
Special resolution of the members
If the matters being voted on are more critical than those covered by an ordinary resolution, then you may need to use a special resolution.
Unlike ordinary resolutions, special resolutions require a 75% vote before they can be passed.
They can be proposed and voted on at general meetings, or written resolution if it is provided for in the articles of association.
The Companies Act 2006 specifies a number of instances that the company will need to use special resolutions, including:
- Amending the articles of association
- Making changes to the shareholders’ agreement
- Changing the company name
- Displaying the shareholders’ pre-emption rights
- Altering the objective of the business
- Allotting new shares
- Reducing the company’s share capital
- Approving share transfers
- Appointing a chairperson of the board
- Changing a private limited company to a public limited company (PLC), or vice versa
- Authorising compensation for directors
- Winding up the company by members’ voluntary liquidation
Many companies choose to alter their articles of association and shareholders’ agreements to specify the use of special resolutions for other types of decisions too. Or to specify that a higher, or unanimous approval is required for some, or all, decisions made by special resolution.
These are the formal decisions made by the director(s) of a company. Typically this is passed by a majority at a board meeting unless there is a higher majority or unanimous approval specified in the articles of association.
Typically, directors only have one vote each which is cast by a show of hands, or on a poll. Resolutions can also be passed in writing unless this is prohibited under the articles of association.
The type of decisions that can be made via board resolutions depends on the powers they are granted under the articles of association and shareholders’ agreement. However, they are typically used for more routine management decisions, such as:
- Changing the company’s registered address
- Changing the location of statutory company registers
- Appointing an accountant
- Entering into important contracts with clients
These are a convenient alternative to passing resolutions in person at general meetings or board meetings. This is providing that there are no restrictions in the articles of association. However, this is only an option for private limited companies, not PLCs.
A copy of the proposed written resolution should be provided to every eligible member or director and should state:
- The details of the proposed resolution
- Whether it is an ordinary resolution or a special resolution
- The deadline for casting votes
- Clear instructions on how to cast votes
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