Company resolutions are legally binding decisions made by a company’s members (shareholders or guarantors) or directors. Resolutions are required when formal decisions need to be made on matters beyond the scope of day-to-day business operations, such as appointing and removing directors or changing the articles of association.
Key Takeaways
- A company resolution is a formal, legally binding decision or action taken by a company’s directors or members.
- Different types of matters require different types of company resolutions. They include ordinary resolutions, special resolutions, board resolutions, and written resolutions.
- Eligible directors and members cast their votes for or against a proposed resolution. A resolution will only pass if the required majority vote is achieved.
Limited company resolutions
Company directors and members must follow specific procedures when proposing and approving important actions or agreements. These formal decisions are known as company resolutions – motions considered and voted on by a company’s directors or members.
Typically, company resolutions are passed (approved) by a majority vote of the members at a general meeting or the directors at a board meeting. However, it is often possible to pass resolutions in writing instead.
The different types of company resolutions are:
- Ordinary resolution of the members
- Special resolution of the members
- Written resolution (can be ordinary or special) of the members
- Directors’ resolution (or ‘board resolution’)
- Directors’ written resolution
Company decision-making rules and procedures are set out in the Companies Act 2006 and the articles of association, which usually specify when a resolution is required and the type of resolution to be used.
Some companies also clarify this information in a shareholders’ agreement, so it is essential to refer to all relevant documentation before proposing and passing a resolution.
Ordinary resolution of the members
Used for routine matters that require approval from company members, an ordinary resolution is a formal decision requiring approval by a simple majority (i.e. above 50%).
Ordinary resolutions are normally proposed and voted on at general meetings, with eligible members casting their votes by a show of hands (or by proxy) or on a poll. In some instances, it is possible to pass an ordinary resolution in writing (a written resolution).
An ordinary resolution is passed when more than 50% of all votes are cast in favour of the motion (the proposed resolution). Some shareholders may have more than one vote – for example, if they hold multiple shares or their shares carry more than one vote each.
This is why the outcome of a resolution is based on the number of votes cast for or against a motion rather than the number of members who vote.
The types of decisions that generally require an ordinary resolution of the members include:
- Appointing or removing a company director
- Appointing or removing a company secretary
- Granting additional powers to directors
- Approving directors’ loans
- Making changes to a director’s contract
- Authorising shareholders’ dividend payments
- Increasing authorised share capital
- Authorising the company to purchase its own shares
Some companies may specify in their articles that certain decisions typically requiring an ordinary resolution must be passed by a special resolution instead, so it is important to check the articles of association beforehand.
Special resolution of the members
Special resolutions are used for more critical business matters that extend beyond the directors’ powers and cannot be passed by an ordinary resolution of the members. This type of resolution requires the approval of at least 75% of members’ votes.
They can be proposed and voted on at general meetings, or by written resolution if provided for in the articles of association.
The Companies Act 2006 specifies a number of important decisions that require a special resolution of the members, including:
- Amending the articles of association
- Making changes to the shareholders’ agreement
- A change of company name
- Disapplying shareholders’ pre-emption rights
- Altering the objectives of the business
- Allotting new shares
- Reducing the company’s share capital
- Approving share transfers
- Appointing a chairperson of the board
- Changing a private limited company to a public limited company (PLC), or vice versa
- Authorising compensation for directors
- Winding up the company by members’ voluntary liquidation
Many companies choose to alter their articles and shareholders’ agreement to specify the use of special resolutions for other types of decisions, including those which are normally passed by ordinary resolution or board resolution, or to specify that a higher majority or unanimous approval is required for some or all decisions made by special resolution.
By including such provisions in the articles and shareholders’ agreement, members (particularly minority shareholders) enjoy a greater level of protection. This minimises the risk of certain decisions being made without proper consideration or at the will of only majority shareholders.
Directors’ resolutions
Directors’ resolutions, otherwise known as board resolutions, are formal decisions made by a company’s board of directors. Typically, this type of resolution is passed by a simple majority at a board meeting, unless a higher majority or unanimous approval is specified in the articles.
Directors usually have one vote each, which they will cast by a show of hands (or by proxy) or a poll. Board resolutions can also be passed in writing unless prohibited under the articles.
The types of decisions that company directors can make by board resolution depend on the powers they are granted under the articles and shareholders’ agreement.
However, board resolutions usually only deal with routine management decisions, such as changing the company’s registered office address, changing the location of statutory company registers, appointing an accountant, or entering into important contracts.
Written resolutions
Written resolutions are a practical and convenient alternative to passing company resolutions in person at general meetings or board meetings. Provided there are no restrictions in the articles of association, members’ resolutions (ordinary and special) and directors’ resolutions can be passed in writing. This option, however, is only available to private limited companies, not PLCs.
The main advantage of written resolutions is efficiency. There is no need to deal with the administrative burden of organising, attending, and recording meetings. This allows important decisions to be proposed and passed quickly, even if members or directors are in different locations or otherwise indisposed.
How to pass a written resolution of the members
To propose a written resolution of the members, the directors must pass a board resolution approving the circulation of the motion. Alternatively, members holding at least 5% of the total voting rights can propose a written resolution. In this situation, the directors must circulate the motion amongst all eligible members within 21 days.
To propose a written directors’ resolution, a copy of the motion should be circulated or issued to each director. Written board resolutions usually require unanimous approval, but it is possible to alter the articles to specify agreement by majority rather than unanimity.
A copy of the proposed written resolution should be provided to every eligible member or director and should state:
- The details of the proposed resolution
- Whether it is an ordinary resolution or a special resolution (members’ resolutions only)
- The deadline for casting votes
- Clear instructions on how to cast votes
Written resolutions can be circulated in hard copy form by post, electronically via email, or on a website. Members or directors will then signify their agreement to the motion by signing the document, responding to the email, or providing confirmation via the website.
Filing company resolutions at Companies House
Within 15 days of passing a special resolution of the members, the directors must file a copy at Companies House. They must also file copies of the following ordinary resolutions at Companies House:
- Granting authority to the directors to allot shares
- Renewing, varying, or revoking directors’ authority to allot shares
- Authorising the company to purchase its own shares
- Renewing, varying, or revoking the company’s authority to purchase its own shares
- The redenomination of shares
Where applicable, copies of other documentation may also need to be filed alongside the company resolutions, such as altered articles of association.
Keeping copies of company resolutions
All company resolutions passed at general meetings or board meetings should be recorded in meeting minutes. These must be kept at the company’s registered office address or single alternative inspection location (SAIL address) for at least 10 years from the date of the resolution. This also applies to copies of written resolutions.
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