Company Resolutions: Special Resolutions and Ordinary Resolutions

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You might have come across the term “company resolutions” while running your business, and wondered what they’re used for. Company resolutions are official votes that are passed by a company’s shareholders. These votes are needed to make certain changes or perform certain actions for companies. For instance, company resolutions are needed to change a company’s address, appoint and remove directors, appoint and remove corporate secretaries, and more. You can think of resolutions like a general election, except for a company. Resolutions ensure that important decisions which will affect a company and its shareholders are made democratically.

In this guide, we’ll explain:

  • What is a company resolution?
  • Who can pass company resolutions?
  • What are the different types of company resolutions?
  • What are company resolutions used for?
  • How are company resolutions passed?
  • How should I protect my company from business risks?

What is a company resolution?

A company resolution is a formal decision made by either shareholders or the Board of Directors of a company. These decisions can range from relatively minor administrative functions, like changing the company’s official address, to major decisions, like replacing a Board Director. Company resolutions are passed at AGMs (Annual General Meetings) or EGMs (Extraordinary General Meetings).

Who can pass company resolutions?

Company resolutions can be passed by:

  • Shareholders, or
  • Board of Directors

When shareholders pass a resolution, it is known as a shareholder resolution. When the Board of Directors passes a resolution, it is known as a Board resolution. We talk about whether there are any differences between these two types of resolutions later on.

What are the different types of company resolutions?

There are two types of company resolutions:

  • Ordinary resolutions (requires at least 50% of votes to pass)
  • Special resolutions (requires at least 75% of votes to pass)

What are company resolutions used for?

Ordinary resolutions:

An ordinary resolution requires at least 50% of votes to pass. Ordinary resolutions can be passed either by shareholders, or the Board of Directors.

The 50% threshold for passing ordinary resolutions is the industry standard, and this standard is used by most companies. However, a company’s constitution can actually specify a higher voting threshold to pass an ordinary resolution. For instance, the company’s constitution can state that ordinary resolutions be passed with 60% of votes, 70% of votes, etc. It’s really up to the company’s shareholders to decide if they want to have a higher threshold.

Here is a list of common corporate decisions that require ordinary resolutions:

  • Issuing new shares
  • Appointing and removing Board Directors
  • Paying Board Directors a fee (instead of a salary)
  • Paying Board Directors a golden handshake when they leave the Board
  • Extending company loans to Board Directors
  • Declaring dividends
  • Appointing and removing company auditors
  • Company entering into a substantial property transaction with a Board Director

Special resolutions

A special resolution requires at least 75% of votes to pass. Special resolutions can be passed either by shareholders, or the Board of Directors. Special resolutions are used for decisions that will have a significant impact on a company’s future.

Just like with ordinary resolutions, a company’s constitution can be modified to specify a higher voting threshold to pass a special resolution. For instance, the company’s constitution can state that special resolutions require 80% of votes, 95% of votes, etc.

Here is a list of corporate decisions that require special resolutions:

  • Reducing company’s share capital
  • Changing company’s name
  • Winding up a company voluntarily
  • Modifying company constitution
  • Modifying company’s articles of association
  • Changing company from public to private, or private to public
  • Merging with another company
  • Negating pre-emptive share purchase rights by shareholders (“right of first refusal”)

What’s the difference between shareholder resolutions vs Board resolutions?

There is no difference in the authority of shareholder resolutions vs Board resolutions. The only reason why a certain resolution may be brought up for a shareholder vote vs a Board vote is for the type of decision being made. Since the Board members are typically chosen for their expertise and ability to oversee management, the Board will typically make decisions that require business acumen. Ultimately, the Board is there to represent shareholder interests, so it’s to the benefit of shareholders to allow Board members to make these technical and complex business decisions.

It’s also more efficient for the Board to make decisions related to managing the business, since it’s usually only a handful of people on the Board. Companies may have (potentially) hundreds or even hundreds of thousands of shareholders, and calling for all their votes can be administratively difficult.

Board resolutions are usually passed for:

  • Hiring and firing the CEO
  • Deciding compensation for the CEO and other members of management
  • Approving significant strategy plans, e.g. expanding into new markets, M&A deals, etc.
  • Approving annual budget proposals
  • Approving retrenchments
  • Opening a corporate bank account
  • Authorising certain members of management or other employees to make bank transactions
  • Appointing and dissolving an audit committee

Shareholder resolutions are usually passed for:

  • Appointing and removing Board Directors
  • Paying Board Directors a fee (instead of a salary)
  • Extending company loans to Board Directors
  • Company entering into a substantial property transaction with a Board Director
  • Declaring dividends
  • Appointing and removing company auditors
  • Reducing share capital
  • Company buying back its own shares from shareholders
  • Voluntary winding up

How are company resolutions passed?

Company resolutions can be passed either by voting in-person or via electronic votes. These days, many company resolutions are simply done electronically, since it’s much quicker and easier.

In-person votes:

Company resolutions can be passed at an in-person meeting of the company’s shareholders or Board of Directors. This is most common at say, an annual shareholder’s convention, or at regularly scheduled Board meetings.

Electronic votes:

Company resolutions can be passed by holding electronic votes. However, shareholders can demand for an in-person meeting to be held instead. This power is provided for by Section 184D of the Companies Act. Shareholders who collectively own at least 5% of the voting rights (yes – a rather low threshold) to demand that a physical meeting be held, instead of having an electronic vote.

Procedure to pass ordinary resolutions

Step 1: Prepare a written resolution for the decision you want to seek approval for (e.g. authorising an M&A transaction).

Step 2: Set up a date to vote on the proposed company resolution. Depending on whether it’s a Board or shareholder resolution, you must either all Board Directors or shareholders of this resolution. The resolution must be scheduled at least 14 days in advance, but if the Directors/shareholders who hold at least 95% of the voting rights agree, you can schedule it earlier.

Step 3: Hold the vote. You must receive at least 50% of the votes to pass the resolution.

Procedure to pass special resolutions

Step 1: Prepare a written resolution for the decision you want to seek approval for (e.g. removing a Board Director).

Step 2: Set up a date to vote on the proposed company resolution. Depending on whether it’s a Board or shareholder resolution, you must either all Board Directors or shareholders of this resolution. The resolution must be scheduled at least 21 days in advance, but if the Directors/shareholders who hold at least 95% of the voting rights agree, you can schedule it earlier.

Step 3: Hold the vote. You must receive at least 75% of the votes to pass the resolution.

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