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Company resolutions are legally binding decisions made by the members (shareholders or guarantors) or directors of a limited company. They are required when formal decisions need to be made on matters beyond the scope of day-to-day business operations, such as appointing or removing a director or altering the articles of association.
Typically, company resolutions are passed (approved) by a majority vote of members at a general meeting or directors at a board meeting, but 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
The decision-making rules and procedures that a limited company must follow are set out in the Companies Act 2006 and the articles of association, which normally state when a resolution is required and the type of resolution that should be used. Some companies also clarify this information in a shareholders’ agreement, so it is important to refer to all relevant documentation in the first instance.
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 certain cases, it is possible to pass an ordinary resolution in writing.
An ordinary resolution is passed when more than 50% of all votes are cast in favour of the motion (i.e., the proposed resolution). Some shareholders may have more than one vote, e.g., 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 simply the number of members.
The types of decisions that normally require an ordinary resolution of the members include:
- Appointing a director
- Removing a 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 normally requiring an ordinary resolution must be passed by special resolution instead, so it is important to check the articles of association beforehand.
Special resolution of the members
Used for more critical business matters that extend beyond the powers of directors and cannot be passed by an ordinary resolution of the members, special resolutions require 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
- Changing the 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’ agreements 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, a greater level of protection is enjoyed by members, particularly minority shareholders. This minimises the risk of certain decisions being made without proper consideration or at the will of only majority shareholders.
Directors’ resolutions
Board resolutions are formal decisions made by the director(s) of a company. 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 on a show of hands (or by proxy) or on 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. Normally, however, board resolutions are used for more 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 with clients.
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, because 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 parts of the world, 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, a written resolution can be proposed by members who hold at least 5% of the total voting rights. When proposed by members, the motion must be circulated to all eligible members within 21 days.
To propose a written directors’ resolution, a copy of the motion should simply be circulated or issued to each director. Written board resolutions usually require unanimous approval, but it is possible to alter the provisions in 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 by means of 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
Copies of all special resolutions of the members must be filed at Companies House within 15 days of being passed. Additionally, copies of the following ordinary resolutions should also be filed 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 authority to the company to purchase its own shares
- The redenomination of shares
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 minutes, which must be kept at the company’s registered office or alternative inspection location for a period of at least 10 years from the date of the resolution. This also applies to copies of written resolutions.
