What are Resolutions?
Despite the fact that a company is seen as a separate legal entity it is not able to make its own mind up in a way that a sole trader is able to. With this in mind there needs to be a system in place that allows both the managers of the company (the directors) to make collective decisions and also for the owners (the shareholders) to approve or make decisions on the way in which the company operates.
Resolutions are one of the key ways of doing this. Quite simply a resolution is an agreement of a certain percentage of either the directors or shareholders saying that they agree with the proposition. Depending on the nature of the decision that are being made a different percentage will be required. Typically the more substantial decisions require a 75% majority whereas others require a 51% majority in order to be passed.
Ways of Passing Resolutions
Resolutions are put before a general meeting of the members, or depending on the constitution of the company it may be that the meeting is only being called for a specific group of members. The suggestions that are being put forward for the vote are sent to those entitled to vote in advance of the meeting so that decisions can be made. As a general rule the decision is then made by a show of hands although it is possible for members to request a poll vote if the constitution allows ensuring that the exact correct figures are obtained.
Some decisions will also allow proxy voting although this has to be arranged in advance and will depend on whether the constitution of the company allows it.
Types of Resolutions
As previously suggested there are different resolutions depending on the type of decision that is being made. Broadly speaking there are two types of resolutions, ordinary and special. There are also director’s resolutions, which as you would expect are made by the directors themselves during a board meeting.Director’s resolutions rarely require filing at Companies House except for when there are large changes being made such as a company no longer being a PLC after a share buy back.
For the members, there are ordinary and special resolutions, ordinary resolutions require a simple majority of 51% of those present and entitled to vote whereas special resolutions require at least 75% of those present and entitled to vote in order to be passed. Typically issues of considerable importance such as changing the company name will require a special resolution whereas approving routine events will only require an ordinary resolution.
It is not always possible or indeed practical for a general meeting to be called to pass a resolution either ordinary or special resolution. Where there are very few members, possibly even only one it seems unnecessary to call a meeting and therefore written resolutions can be used to pass such resolutions.
Typically written resolutions are used when there is not likely to be any disagreement over the changes. This is because a higher percentage of approval is required due to the fact that the percentages needed to pass a resolution refers to all those entitled to vote and not simply all those present. If the required number of shareholders or members do not respond then the resolution cannot be passed meaning that written resolutions can offer a practical solution to many companies but are not useful when it comes to contested issues or ones that require considerable discussion before finalising.
Other Issues with Resolutions
Companies House Filings
Certain resolutions require there to be filing to be made at Companies House in order for them to be effective. Where this is the case they need to be filed within a certain period of time, commonly around the 14 / 15 day mark which makes timing of vital importance to these resolutions. For example resolutions to change the company name or company constitution need to be filed at Companies House as well as resolutions that alter the director’s ability to allot shares.
Other resolutions such as accepting a transfer of shares are only filed at Companies House as part of the annual return and are therefore not as tightly controlled in terms of time limits. Copies of all resolution should be kept on the company books although it is the originals that are filed.
Certain situations do not fall within the standard resolutions and require additional thought. There are five situations whereby an elective resolution will be used, this requires unanimous approval and needs to be filed at Companies House within 21 days. One of the most common types of elective resolutions deals with the situation where the company wants to remove the need to put the annual accounts in front of the members or shareholders every year before they are submitted to Companies House or to dispense with the annual need to appoint auditors.
Practical Considerations for Resolutions
Firstly it is necessary for the company officers to consider what exactly they are intending to pass and the necessary majority to pass such a decision.
Secondly the number and types of shareholders or members need to be considered to determine whether a meeting is necessary or a written resolution would be more practical.
Once the resolutions have been duly passed the appropriate filings need to be done at Companies House and copies put on the company books with the register updated as appropriate.