Guide to the different types of private company resolutions

Key Takeaways

• A company resolution is a formal decision made by a company's shareholders.
• There are two typical types of company resolutions: ordinary resolutions and special resolutions.
• They are a key part of corporate governance, ensuring company decisions are valid.
• Written resolutions allow private companies to make decisions without the need for a physical meeting.

Ordinary resolutions

Ordinary resolutions are the most common type of shareholder resolution and form the core of shareholder decision-making. They are designed to deal with the routine business of a company, ensuring that members have a say in the company’s governance without requiring the higher thresholds reserved for more fundamental changes. These resolutions require a “simple majority” of more than 50% of the votes cast by members (in person or by proxy/representative), whether at a meeting or by written resolution – as per the Companies Act 2006 (“the Act”).

Ordinary resolutions are needed, for example, to appoint or remove directors, reappoint auditors or to declare a dividend. These are ordinary matters that recur regularly in the life of a company and are essential to their smooth operation.

The procedure for passing an ordinary resolution may vary depending on the company’s articles of association. In most cases, the resolution can be passed at a general meeting, either by a show of hands (where each member present has one vote) or by a poll (where votes are counted according to the number of shares held). Again, this depends on the company’s constitution, as well as the share rights held by each member.

While ordinary resolutions have a lower threshold than special resolutions, they must still be properly recorded. A record of the outcome should be kept by the company, and, in a few cases – such as authorising directors to allot shares – the resolution may also need to be filed at Companies House. Proper record-keeping ensures compliance with the Act and provides evidence that the company has acted lawfully and transparently.

Special Resolutions

Special resolutions are the other form of shareholder resolution and, as their name suggests, deal with more significant matters than ordinary resolutions. They are reserved for decisions that may affect the company’s structure or constitution, with this being reflected in a higher voting threshold: at least 75% of voting shareholders must support a special resolution for it to pass.

The matters that require a special resolution are set out in the Act and often, additionally, in the company’s articles of association. They cover more significant decisions, such as amending the articles of association or changing the company’s registration from private to public, and vice-versa. These are not ordinary actions and can reshape the company’s identity, governance framework and potentially ongoing success.

The procedural requirements for special resolutions are more stringent than those for ordinary resolutions: all special resolutions must be filed at Companies House within 15 days of being passed. They must be filed using the correct statutory forms and the company’s public record will be updated to reflect the change. Failure to comply with this obligation may have serious consequences – the resolution and its associated decisions could be invalid and the company and its officers could face penalties for non-compliance.

Written Resolutions

Written resolutions are an alternative method for private companies to pass shareholder resolutions without the need for a formal shareholders meeting.

Written resolutions are particularly useful for companies where shareholders may be geographically dispersed. Rather than convening a general meeting, the proposed resolution(s) can instead be circulated in writing (including electronically). This reduces the administrative burden of calling and holding a physical meeting and can speed up decision-making, while still ensuring that the decision is valid and properly authorised. The written resolution process may be more practical for busy company owners.

Written resolutions must be circulated to all eligible members and must set out the proposed resolution(s), instructions for voting and a date by which the resolution must be returned. An ‘eligible shareholder’ is someone entitled to vote on the date that the written resolution was circulated.

The written resolution will be passed when the prescribed majority of eligible shareholders have approved it, within the timeframe specified in the company’s articles (or the 28 day default period in the Act). Shareholders who disagree do not need to respond – non-response is treated as a rejection. The company must keep a copy of the passed written resolution for 10 years from the date of the decision.

There are two resolutions that cannot be passed by the written process – the removal of a director before their term ends and the removal of auditors before their term ends. These must be decided at a general meeting. The director or auditor will be entitled to speak at any such meeting and must be given 28 days’ special notice of the resolution.

Conclusion

Resolutions are the formal mechanism through which companies make decisions. Ordinary resolutions address routine matters and special resolutions are needed for more significant constitutional changes. Written resolutions provide an efficient alternative to shareholder meetings.

By following the correct procedure and maintaining proper records, companies ensure legal compliance and the validity of their decisions.