The majority of routine day-to-day decisions in private limited companies are made by directors. However, significant matters that go beyond the scope of a director’s powers must be addressed by company shareholders. These types of shareholders’ decisions require a resolution to be passed at a general meeting or in writing.
To pass a resolution, which may be ‘ordinary’ or ‘special’, shareholders must cast their votes for or against a proposed course of action. This can be done at a general meeting or in writing. Ordinary resolutions require a simple majority vote (above 50%) to be passed. Special resolutions require at least a 75% majority vote to be passed.
Ordinary resolutions are used for all decisions made by directors and shareholders, unless the Companies Act or the articles of association states the need for a special resolution. Special resolutions can only be passed by shareholders.
- The difference between an ordinary resolution and a special resolution
- What is a written resolution?
- What is the notice period for proposed resolutions?
- Who must receive a copy of proposed resolutions?
- How to pass a resolution
- How are votes counted?
- How to record company decisions
- Filing resolutions with Companies House
- How long must a company keep copies of resolutions?
1. The difference between an ordinary resolution and a special resolution
1.1. Ordinary resolution
An ordinary resolution is ‘passed’ when more than 50% of the votes cast are in favour the resolution.
This type of resolution requires a vote to be taken at:
- A general meeting of shareholders.
- A board meeting of directors.
- By written resolution.
Please note: a written resolution cannot be used to remove a director or auditor.
An ordinary resolution is used by shareholders in situations where the directors have no authority to make a decision. Typically, these types of decisions include:
- Paying dividends.
- Appointing and removing directors.
- Approving directors’ service contracts.
- Approving directors’ loans.
- Allotting new shares.
The articles of association will state the extent of the directors’ powers and which matters can be passed by ordinary resolution.
1.2. Special resolution
A special resolution is required for exceptional or sensitive matters. The Companies Act 2006 and the articles of association will outline which decisions require this type of resolution. A special resolution can only be passed when at least 75% of shareholders’ votes are in favour of the resolution.
This type of resolution is most commonly used to:
- Alter the articles of association.
- Alter a shareholders’ agreement.
- Change a company name.
- Restructure a company.
- Remove pre-emption rights of shareholders.
- Reduce share capital.
- Wind up a company.
Shareholders can stipulate the need for a special resolution for other decisions but this must be clearly stated in the articles of association.
2. What is a written resolution?
A written resolution, which may be ordinary or special, is a resolution that is passed in writing, rather than at a general meeting where each member casts their vote(s) in person or by proxy.
Written resolutions can be proposed by a director or any shareholder who owns at least 5% of the voting rights in the company.
All decisions in a private limited company can be dealt with by written resolution, with the exception of the removal of a director or the removal of an auditor. Public limited companies (PLCs) are not permitted to use the written resolution procedure.
3. What is the notice period for proposed resolutions?
3.1. Proposed resolutions at a general meeting
The notice period for a proposed ordinary or special resolution at a general meeting is 14 days. However, where a resolution is proposed to remove a company director or auditor, 28 days’ notice is required. The director or auditor in question must also be informed.
In addition to the time, date and location of a general meeting, the notice must state the intention to pro-pose a resolution and the nature of the resolution. A copy should be provided to all members. A copy must also sent to the auditor, if the company has one.
3.2. Proposed written resolutions
The procedure for written resolutions is slightly different – each member (shareholder) must be given a copy of the resolution in paper or electronic form. This should be accompanied by a statement that outlines the way in which the members must indicate their agreement and the deadline for passing the resolution.
Generally, the notice period for written resolutions is 28 days from the date the members receive a copy.
4. Who must receive a copy of proposed resolutions?
Proposed resolutions should be sent to all eligible members (those entitled to vote) and the company auditor (if applicable), either in writing or electronic format. If a resolution is proposed to remove a director, he or she must also receive a copy.
5. How to pass a resolution
Resolutions in private limited companies can be passed by a poll or show of hands at a general meeting or by written resolution. If the required majority of votes is achieved, the resolution is passed and the decision is legally binding.
Copies of special resolutions must be delivered to Companies House by post within 15 days of being passed. Any registered company details or documents that are altered as a result of a resolution must also be reported to Companies House.
6. How are votes counted?
To determine whether the required majority has been achieved, the number of voting shares must be counted, not the number of shareholders who are entitled to vote. Most shares will carry one vote each but shareholders can own varying quantities of shares, and some share classes can carry more than one vote.
If the required majority of votes is obtained, the resolution is passed – if the required majority of votes is not obtained, the proposed resolution is rejected.
7. How to record company decisions
Company decisions must be recorded by taking minutes of all general meetings and decisions. Copies of minutes and resolutions must be kept at a company’s registered office or SAIL address for at least 10 years and made available for inspection.
Statutory company records and registers must also be updated, where required.
8. Filing resolutions with Companies House
Resolutions must be delivered to Companies House by post within 15 days of being passed. It is not possible to deliver these documents by electronic means.
9. How long must a company keep copies of resolutions?
Copies of resolutions must be kept for a minimum of 10 years from the date they are passed, as well as any minutes of meetings. These records must be kept a company’s registered office or SAIL address, where they must be made available for inspection upon request.
By Chris Tapley, Content Writer for 1st Formations.