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.
For more information on:
- Other Issues with Resolutions
- Companies House Filings
- Atypical Situations
- Practical Considerations for Resolutions