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 Resolution
Resolutions 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.
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 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.
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.