Whilst routine decisions in private limited companies are normally made by the directors, certain decisions that go beyond the directors' powers are made by the shareholders. Decisions of the shareholders are made by "ordinary" or "special" resolutions that may be made at a general meeting, or in writing. Written resolutions cannot be used to remove a director or auditor.
To pass a resolution, shareholders must vote for or against a proposal. Ordinary resolutions require a simple majority - more than 50% of votes - in favour of the proposal; special resolutions require a majority of at least 75% to pass.
Ordinary resolutions are used for most decisions of the shareholders, unless the Companies Act or the company's articles of association require a special resolution.
Ordinary resolutions
Ordinary resolutions require a vote to be taken at a general meeting of the shareholders, or by written resolution. Ordinary resolutions are used in situations where the directors have no authority to make a decision. Typically:
- paying dividends;
- appointing and removing directors;
- approving directors' service contracts;
- approving directors' loans;
- allotting new shares.
The company's articles of association will state the extent of the directors' powers and indicate what matters can be decided by ordinary resolution.
Special resolutions
Special resolutions are required for certain exceptional or very sensitive matters. The circumstances requiring special resolutions are laid out in the Companies Act and the company's articles. Special resolutions are commonly used to:
- amend fhe articles of association;
- amend a shareholders' agreement;
- change the company's name;
- restructure the company;
- wind up the company;
- reduce the share capital;
- remove shareholders' pre-emption rights.
Written resolutions
A written resolution, which may be ordinary or special, is passed in writing rather than in a general meeting. Written resolutions may be proposed by a director or shareholder(s) holding at least 5% of the voting rights.
In a private limited company, all decisions may be made by written resolution, with the exception of the removal of a director or the auditor. Public limited companies are not allowed to use written resolutions.
Notice of resolutions
Proposed resolutions at a general meeting
The notice period for a proposed ordinary or special resolution at a general meeting is 14 days, however where the resolution concerns the removal of a director or the auditor, "special" notice of 28 days is required, and the director or auditor concerned must receive a copy of the notice.
The notice should state the time, date and location of the meeting, the intention to propose a resolution and the nature of the resolution. A copy should be sent to all members and the auditor (if the company has one). If a resolution is proposed to remove a director, he or she must also receive a copy.
Written resolutions
Each member is given a copy of the resolution in paper or electronic form, accompanied by a statement explaining how members must indicate their agreement, and the deadline for passing the resolution. Generally the notice period for written resolutions is 28 days from the date members receive a copy.
Passing resolutions
In private limited companies resolutions are passed by a poll or show of hands at a general meeting, or by written resolution. If the required majority of votes is acheived, the resolution is passed and the decision is binding.
Copies of special resolutions must be submitted to Companies House within 15 days of being passed, along with any changes of registered details or documents that are altered as a result of the resolution.
To determine whether the required majority of votes is achieved, the number of voting shares must be counted, not the number of shareholders who vote. Shares normally carry one vote each, but that is not always the case and obviously shareholders can own varying quantities of shares.
If the voting takes place at a general meeting then the number of votes 'for' is taken as the percentage of the total voting rights in attendance at the meeting - not the total voting rights in the company.
If the require majority of votes is achieved, the resolution is passed; otherwise the proposed resolution is rejected.
Recording decisions
Company decisions must be recorded by taking minutes of all general meetings and decisions. Copies of minutes and resolutions must be kept at the registered office or SAIL address for at least 10 years and made available for inspection.
Special resolutions should be delivered to Companies House by post within 15 days of being passed; ordinarty resolutions do not usually need to be delivered to Companies House.
The company's statutory registers should also be updated where applicable, as the result of a resolution being passed.
