Resolutions needn't baffle business owners: they're actually reasonably simple. Owning and running a company is fairly straightforward, especially if it’s a private limited company with just a few shareholders and directors, and relatively few formalities are required to comply with company law.
Some basic housekeeping is required, however, to ensure that important decisions the company takes, whether by the directors or members, are valid and binding, even if you are the sole director and shareholder. For example, all decisions of the board and shareholders must be recorded in writing, and some types of members’ decision must be filed at Companies House for inspection by the public. Here we’ll be explaining the key meetings and resolutions your business will need to be aware of.
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An outline of the key meetings in each type of company
When a company’s shareholders meet, these meetings are called ‘general meetings’, and the way these meetings are called and conducted is regulated by the Companies Act, the company’s Articles of Association and any shareholders agreement that may be in place.
The rules about general meetings vary slightly, depending on whether the company is a private or public limited company, a single member company, or traded, listed or quoted on a stock exchange.
Company directors usually meet regularly, and on an ‘as needed’ basis to discuss matters concerning the company’s business and day-to-day operations. These meetings are known as ‘board meetings’. The first board meeting of a company is likely to be a fairly formal affair, and will consider matters such as:
- management of the company, roles and responsibilities
- company strategy and objectives
- allotting shares and issuing share certificates
- appointing a chairperson, company secretary and auditor
- administrative details such as filing dates and deadlines
- staffing matters
You must keep a record of your board meetings, even if you are a single member company.
In contrast, meetings of the company’s shareholders (or members, if it’s a company limited by guarantee) meet to vote on matters that relate to the administration of the company such as:
- the appointment, removal and powers of directors
- changes to constitutional documents like the Articles and any shareholders’ agreement, or the company’s objects (purpose)
- changes to the company’s name or registered address
- issuing shares, creating new classes of shares, transferring shares or winding up the company
- major issues like litigation, loans or financial matters
A public company must hold an annual general meeting (AGM) within six months of the end of its financial year, and private traded companies within nine months. Private, non-traded companies (the majority of small companies) are not required to hold an AGM by law, but will have to do so if their Articles require it.
In the past, certain general meetings were known as ‘extraordinary general meetings’, but this distinction has now been abolished.
Most general meetings will be called by the board of directors. Shareholders (those holding at least 5% of paid-up shares having the power to vote) and the court also have the ability to require the directors hold a general meeting. In certain circumstances, the auditors may ask the directors to call a general meeting.
Types of resolution in company law
When the board or the members of a company take a legally binding decision, this is known as a ‘resolution’. A resolution is passed if it achieves the requisite number of votes, and if taken at an annual meeting is binding on the company provided that:
- a notice of the meeting and the resolution has been properly given
- the meeting has been convened and held in accordance with company law
Resolutions of the shareholders may be ‘ordinary’ or ‘special’ decisions, and they may also be written.
Board resolutions
These are resolutions of the board of directors of a company.
Members’ resolutions
These are resolutions of the members (or shareholders if the company is limited by shares) of a company.
Ordinary resolutions
These are decisions taken by the members of a company in general meetings, and are used for all matters unless the law, the Articles or a shareholders’ agreement calls for a special resolution.
An ordinary resolution is passed if:
- at a meeting where decisions are made by a show of hands (or by proxy), a simple majority (50%) of votes are cast
- a poll is demanded at a meeting (where every member has one vote for each share owned), if it is passed by a simple majority
Shareholders of public companies can require that resolutions are put to an AGM, and shareholders of traded companies can also require the company put certain ‘matters’ before an AGM. This power is often used by shareholders who want certain, perhaps controversial, subjects such as directors’ pay, to be discussed in public.
Special resolutions
A special resolution is a decision of members of a company. It requires at least 75% of votes. A meeting at which a special resolution is to be discussed must include the full text of the resolution, and identify the decision as a special resolution, or it will be invalid, and 14 days’ notice must be given of the meeting.
Special resolutions are used for decisions that may have a major impact on shareholders or the company such as:
- reducing or increasing the number of shares, creating classes of shares or removing pre-emption rights
- changing the company’s name
- changing the nature of the company, altering its constitution or winding it up
A special resolution is passed:
- at a meeting where decisions are by show of hands, by a 75% majority
- on a poll, if passed by shareholders representing 75% of those that vote
Extraordinary resolutions
These are decisions of company members. Although the concept of an extraordinary resolution has now been abolished, your company’s Articles may still refer to it if it was formed prior to 2006. In this case, you must follow the rules set out in the Articles, the resolution must be passed in the same way as a special resolution, and must be filed at Companies House.
Written resolutions
Written resolutions of directors can be more conveniently taken in writing if they are not likely to be controversial. Unless the Articles preclude their use, directors can pass written resolutions and they must be signed by each member of the board.
Written resolutions of shareholders can only be used by private limited companies, and not by public companies. They cannot be used to remove a director before the end of his or her normal term of office, or to remove the auditors early. Either the board or the members can propose a written resolution. Where the directors propose a written resolution, they must send a copy to every eligible member (or post it on a website) at the same time, together with instructions how to signify their agreement to the resolution and when it will lapse. Eligible members are those entitled to vote on the circulation date.
Members can require a written resolution be circulated if they hold 5% or more of the voting rights (or less if provided for in the Articles), and if it would be effective if passed.
Written resolution must be passed by a simple majority if it’s an ordinary resolution, or 75% if it’s a special resolution.
Passing resolutions: an outline of the process
Board meetings
Meetings of the board of directors of a company are usually relatively informal, and any rules that relate to how they are called and conducted are found in the Articles. Any director or the company secretary can call a board meeting, and reasonable notice must be given (or the length of time may be stipulated in the Articles).
For listed companies, the Corporate Governance Code states that boards should meet regularly, and the directors should be given adequate information of the matters to be discussed.
The Articles will set out the number of directors that constitute a quorum (the number of directors that need to be present before the meeting can go ahead). Each director will have one vote, and the chairman often has the casting vote. Meetings can sometimes be conducted by telephone or videoconference if the Articles permit it. Minutes must always be taken and have to be kept for at least ten years.
Members’ meetings
A notice of the meeting must be issued to all members entitled to receive one, plus the directors and auditors. The notice should state the date, time and location of the meeting. The meeting should be held in a venue of an appropriate size to hold all shareholders who wish to attend.
For listed companies, the meeting notice often takes the form of a formal circular, containing a notice from the chairman explaining the purpose of the meeting, and a note of the business to be discussed.
If a special resolution will be proposed at a members’ meeting, the notice must state this, and include the full text of the resolution.
Failure to give notice to anyone who is entitled to receive it will invalidate the meeting.
Notice can be by letter, email or via a website, and notice periods range from 14 to 21 days, depending on whether the company is private, public or traded. Again, if proper notice is not given, the meeting will be void, unless the company has decided (subject to conditions) that it can be held on short notice.
For general meetings of private companies, the notice will be fairly simple, and contain a proxy card so that those members who can’t attend are able to vote. Notices for a public company AGM will be more extensive, with a report from the directors detailing the state of the business, a report of the directors’ remuneration, the annual accounts and the report of the auditors, and proxy and attendance cards.
For a members’ meeting to be valid, the meeting must be quorate – generally, that means that two qualifying persons should attend unless the articles state otherwise, or the company is a single member company.
When the vote on a resolution is held, the chairperson’s declaration is conclusive as to whether it has been passed or not. For listed companies, the Corporate Governance Code states that all proxy votes must be recorded and counted in a proper manner, and if a vote is taken on a show of hands, the company must provide information as to result of any proxy votes, and if a large number of votes are against a resolution, the company has a duty to explain what action it intends to understand the reason behind this result.
Resolutions and Companies House
Special or extraordinary resolutions (if your company is still using these) must be filed at Companies House within 15 days of their being passed.
