The Articles of Association and Memorandum of Association form the constitution of limited companies, setting out the rules by which they are run and administered. However, in order to make certain decisions – or change the constitution itself – company directors or shareholders need to pass resolutions. These can be made at general meetings or board meetings (ordinary and special resolutions) or sometimes in writing (written resolutions).
What decisions require a resolution?
Most decisions beyond the normal day-to-day running of a business will require a resolution. These also need to be passed for any decision which affects the constitution or rules of a company. Examples include:
- Appointing company directors;
- Changing directors’ powers;
- Changing the name of a company; or
- Changing the share structure.
- Opening of bank account
- Applying for bank loan
- Increase in Authorised capital of company
- Issue of share
The company articles will normally state if a resolution is required for a certain decision and may also determine the type of resolution needed (eg ordinary or special).
What is an ordinary resolution?
The majority of resolutions used for routine changes, which simply need a majority of shareholders or directors to agree or disagree on a decision, are known as ‘ordinary resolutions’. This type of resolution can be passed with a show of hands at a meeting. Some decisions which require ordinary resolutions are:
- Appointment or removal of company directors and secretaries;
- Authorising director’s loans; or
- Amending the powers of directors of changing their employment contracts.
What is a special resolution?
Special resolutions – also known as ‘extraordinary resolutions’ – are needed for more important decisions or those affecting the constitution of a company. These require at least 75% of the shareholders or directors to agree – sometimes as much as 95%. Unlike ordinary resolutions, votes are determined by the number of shares given to each shareholder (as opposed to the number of shareholders). Types of special resolution include:
- Changing the name of the company;
- Making changes to the Articles of Association; or
- Changing a private company to a public company.
What is a written resolution?
Although meetings (either general meetings for shareholders or board meetings for directors) are normally required to pass resolutions, some decisions can be passed in writing, without the need for a meeting. If enough shareholders or directors have agreed with a decision (a majority for ordinary resolutions and at least over 75% for a special resolution), this can be confirmed in a written resolution.