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When a company is set up, the articles of association and memorandum of association are drawn up to govern how the company is run. Many of the day-to-day decisions in a company will be made by the directors. However, throughout the life of the company, there will be certain occasions when changes need to be made by the company’s shareholders.
Changes agreed by the shareholders are ratified through a company resolution, which is legally binding. Company resolutions must be voted on and approved by company members (shareholders), and a record of them is required.
When is a company resolution required?
Company resolutions are required whenever a significant decision is being made that goes beyond the usual day-to-day activity of the business.
Most company resolutions are agreed on by shareholders during a general meeting, or by signing a written resolution.
There are two main types of company resolutions:
What is an ordinary resolution?
The most common resolutions are ordinary resolutions, which are decided during a general meeting or by written resolution. They are agreed on by a single vote, which can be done by a show of hands if there is a physical members meeting, and require a simple majority of over 50% of shareholders.
An ordinary resolution is used for routine matters requiring approval from company members. These can include:
What is a special resolution?
More significant company decisions – such as those affecting the structure or nature of the company - may require a special resolution instead of an ordinary resolution.
A special resolution requires a higher majority of at least 75% of votes to be cast in its favour. Voting powers are determined by the number of shares held as opposed to a single vote per member, so majority shareholders’ votes will hold more weight than those of minority shareholders.
Below are some of the decisions that require a special resolution:
Companies can also choose to specify in their articles of association that certain decisions must be passed by a special resolution, even if they would otherwise only require an ordinary resolution. This can minimise the risk for shareholders of decisions being made without their approval.
What is a written resolution?
For certain decisions, it is possible for a resolution to be passed without the need for a general meeting. Written resolutions can be an efficient way to pass resolutions, since they do not rely on the scheduling of a meeting.
Both ordinary and special resolutions can be passed in the form of a written resolution under the right circumstances. Provided that a majority of members has agreed the decision, the resolution can be ratified in written form. This requires either:
Keeping records of Company Resolutions?
Companies are required to keep records at the company’s registered office of any company resolutions that have been passed, for a minimum of 10 years, and these records must be available for inspection. For resolutions passed in meetings, these can be recorded in the minutes of the meeting.
A copy of any special resolution must be sent to Companies House within 15 days of it being voted on. In addition, all shareholders should receive written notifications of any new resolutions.
The contents of this article do not constitute legal advice and are provided for general information purposes only.
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