Company Resolutions – What are they?
Although a
company
is a separate legal entity, it cannot make a decision in the same way as a sole trader
can.
A sole trader has one mind and can make a unanimous decision, unlike a company that has
a
number of shareholders that will all have a say when making a decision, and they may not
all
agree!
To avoid delays, and to make it easier for company shareholders to reach a
decision, there needs to be a system in place where the directors who manage the company
and
the shareholders who own the company can agree on the way in which the company will be
run.
This is where resolutions come in their own. A resolution is an agreement
that
anything over a certain number or percent of votes by directors or shareholders for a
proposition will be required before it can be accepted. This will depend on the nature
of
the decision of course, so something that carries more weight and will have a greater
impact
on the company may need over 75% agreement from directors and shareholders before going
ahead, whereas something of lesser importance may only need just over half of the voters
in
agreement to be passed.
How to use a ResolutionResolutions are usually presented at
general meetings, but this may not mean that all members will be present because the
meeting
may only need to involve a certain group of members, such as a task force or project
team
for example. The decision that is being put forward for the vote will be voted on by
those
entitled to vote, and if members cannot be present at the meeting, they may be entitled
to
vote in advance to enable the decision to be finalised at the meeting.
What
usually
happens is that a decision will be made by a show of hands at the meeting, and be
counted in
with votes received in advance. Alternatively, members can request a poll vote to ensure
the
correct figures are counted, if the constitution allows this. Proxy votes will also be
counted if the constitution also allows this.
The votes will be counted, and if
the
voting number is above the number or percentage agreed, then the proposal will be
passed.
Resolution Types
There are different resolution types, and these depend on the sort of
decision-making you intend to do. Generally speaking there are ordinary (passed by a
simple
majority) and special resolution types (usually passed by a 75% majority), as well as
director's resolutions that are used during board meetings (passed by a simple
majority). The director's resolutions don't usually need filing at Companies
House, unless you are talking about a substantial change being proposed that would
affect
the company, such as a change of PLC status following the buying back of
shares.
Ordinary and special resolutions are most commonly used by members during
routine meetings. Where a simple 51% majority vote is needed for a motion to go ahead, a
simple resolution is used to count votes and pass the decision, whereas a special
resolution
would need a higher percentage to agree before passing the bill, for example 75% of the
vote.
Written Resolutions
Written resolutions are used when there is not likely to be any disagreement
over a change. Sometimes it is not always possible to call a general meeting to pass a
resolution when there are only a few members available to attend. It can be quite
annoying
to have to call a meeting to pass every minor thing, so in these cases it is much less
hassle for members to use a written resolution to simplify things.
Where a
pressing
issue needs addressing, and not enough voting shareholders can be present for a meeting,
then members can respond via a written resolution. This can offer a practical solution
for
many companies where shareholders eligible to vote live in different countries across
the
world, and it would be impractical to travel to a central location for a meeting on a
minor
issue. However, written resolutions are not useful when a company needs to discuss and
finalise a contested issue, or something that needs a lot of debating before being
agreed
upon.
Issues with filings at Companies House
Depending on the gravity of the resolution, some resolutions will need to
filed
at Companies House for them to become effective. To do this, a company needs to file the
resolution usually within two weeks of it being passed, so it is important to make sure
you
get your timing right. An example of something that needs filing with Companies House
relatively quickly would be a resolution to change the company name, or having the
constitution amended.
Resolutions of lesser impact, such as a transfer of shares
for
example, need only to be filed at Companies House when submitting your annual returns,
but
copies of all resolutions need to be kept on record on the company books and be
available
for inspection. The originals will need to be filed with Companies House.
Problematic Resolutions
When an issue arises that falls outside of the standard resolution
description,
and requires extra focus, then a special resolution can be used. This can require
unanimous
approval coming from all members eligible to vote on the issue, and the resolution will
need
to be filed with Companies House within 21 days of it being passed.
Special
resolutions are most commonly used when they company directors want to remove the need
to
show annual accounts to its shareholders or members each year before being submitted to
Companies House. Special resolutions are also used to dispense with the need to appoint
auditors each year. There used to be another category of resolution used previously
under
these circumstances called elective resolutions that were required in certain
circumstances
by the 1985 Act, but these have now been abolished, though a company's articles may
still refer to these.
Considerations for Resolutions
To agree a resolution, it is necessary first of all to consider what topic they are
intending
to pass, as well as setting the level of majority needed for the resolution to pass. So
if
it is a resolution which will have a large impact on the company, the directors will
want a
larger majority of eligible voters to vote in favour of the resolution for it to be
passed,
say 75%, and a lower percent for something with far less impact, say 51%.
The
directors will also need to determine whether a meeting is needed, or whether a written
resolution will suffice. If there are a large number of shareholders or members who
would
have difficulty attending a meeting, then would a more practical solution be to have a
written resolution.
After all these considerations have been taken into account, and
the
resolution has been passed, the appropriate filings need to be completed with Companies
House, and copies of the resolution should be put into the company books and the
register
updated to reflect the change.
