Summary
- Private companies can pass shareholder resolutions without holding a general meeting by using a written resolution, which requires the relevant majority of all eligible shareholders (not just those present at a meeting) to sign or otherwise indicate approval within a set timeframe.
- Written resolutions cannot be used to remove a director or auditor – these decisions must be made at a general meeting.
- A private company cannot restrict shareholders’ right to use written resolutions through its articles of association.
- This article is a plain-English guide to written resolutions for private company shareholders and directors in England and Wales, prepared by LegalVision, a commercial law firm.
- LegalVision specialises in advising clients on corporate governance and shareholder matters.
Tips for Businesses
Ensure your articles of association are reviewed before circulating a written resolution, as they may impose specific procedural requirements. Keep your member register current, as only registered shareholders may vote. Remember that ordinary resolutions require over 50% and special resolutions require 75% of all voting shares.
In the UK, shareholders may need to make certain decisions that go beyond the authority of the company’s board of directors. These decisions, governed by the company’s articles of association, shareholders’ agreement, and the Companies Act 2006, require shareholder approval through resolutions. Shareholders can approve resolutions either at a general meeting or via a written resolution, a process permitted for private companies. This article explains written resolutions, how they differ from general meetings, and their advantages and limitations.
What is a Written Resolution for Shareholders?
A written resolution is a formal decision made by shareholders without the need for a physical meeting. It allows shareholders to vote on company matters by indicating their agreement in writing, typically through signing a document or responding to an email.
General Meetings
By default, companies must pass shareholder resolutions at shareholder meetings. These meetings, commonly called general meetings, require shareholders to be physically present to vote (which may also be by electronic means such as a video call). Alternatively, a shareholder can appoint a proxy to vote on their behalf.
Importantly, there must be a minimum number of shareholders (or their proxies) at a meeting for it to be lawful. This minimum number called a quorum, cannot be less than two for all companies with two or more shareholders. In practice, many companies amend their articles of association to require more shareholders.
Written Resolutions
Private companies can bypass the need for a general meeting by using written resolutions, which save time and reduce administrative costs. Public companies, however, cannot use this method.
Who Can Propose Written Resolutions?
Subject to your company’s articles, both shareholders and directors can propose resolutions via the written resolution procedure. The procedure for each differs depending on whether the board is proposing the resolution or the shareholders. The following are generic procedure plans for both. However, you should consult a solicitor before implementing this because your articles may have specific rules.
| Procedure Proposed by the Board | Procedure Proposed by Shareholders |
| The directors must send a copy of the resolution to every eligible shareholder. The copy can be in hard copy or electronic. | Any shareholder with 5% or more of the total voting rights can propose a resolution. A company can amend its articles so that the threshold is lower. The shareholder may be liable to the company for the expense of circulating the resolution. |
| Directors should ensure copies are sent simultaneously to all eligible shareholders. | The directors must circulate the proposal within 21 days from the date they are the company is subject to the requirement to circulate the proposal. This depends on the exact procedure the shareholder that proposed the resolution used. |
| The directors should include a statement with a copy that explains to the shareholders how to signal their approval. Likewise, the statement should clearly explain the timeline for response and when the deadline for passing the resolution lapses’. | The circulation must include the text of the resolution and an explanation of its main purpose. |
| Shareholders indicate their agreement by signing and returning the resolution document or by responding affirmatively to an electronic communication. | Shareholders then have the opportunity to vote on the resolution in the same manner as a board-proposed resolution. |
| The resolution is passed once the required majority of eligible shareholders have signified their agreement within the specified timeframe. |
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Which Shareholders are Eligible to Vote
As a general rule of thumb, all shareholders who would be eligible to vote if the resolution were proposed at a general meeting are eligible to vote on the written resolution. Practically, this means that only shareholders entered into the company’s member register are entitled to vote on the written resolution. Therefore, if you have recently issued shares or otherwise transferred existing shares to a new shareholder, consider speaking with a solicitor.
When you incorporate a company in England and Wales, you must maintain a number of company registers at its registered office or at the Companies House. This template includes these company registers.
Further Legal Considerations
Limitations on Written Resolutions
Any resolution proposing to remove a director before the director’s term of service expires requires a general meeting. Therefore, you cannot put the matter to shareholders in the form of a resolution. Moreover, the company cannot escape this law by amending its articles.
Number of Votes Required
An ordinary resolution is a decision by shareholders holding a simple majority (more than 50%) of the shares. In comparison, a special resolution requires at least 75% of votes in favour to pass.
Some resolutions may require special resolutions rather than ordinary resolutions. A typical example is any resolution to amend the company’s articles of association. The main distinction between passing a resolution at a general meeting and passing a resolution by written resolution is the number of shareholders required to vote for it to pass.
At a general meeting, resolutions will first be voted on by way of a show of hands, and, if required, a poll can be demanded whereby each shareholder present has the number of votes equivalent to their shareholding. Only shares held by those present are considered for an ordinary or extraordinary resolution to pass at the meeting.
Conversely, for an ordinary resolution to pass in writing, shareholders holding more than 50% of all the voting shares must sign the resolution. As you can see, you can often pass a shareholder resolution with fewer shareholder votes if it is passed at a general meeting.
Attempts to Restrict Written Resolutions
A private company cannot restrict the right of its shareholders to pass resolutions via written resolutions. Therefore, you should not attempt to incorporate any terms into the company’s articles of association that restrict this right.
Advantages and Disadvantages of Written Resolutions
| Advantage | Disadvantage |
| Time and cost-effective: No need to arrange a physical meeting, saving on venue costs and travel expenses. | Limited discussion: Less opportunity for debate and exchange of ideas among shareholders. |
| Flexibility: Shareholders can vote at their convenience within the specified timeframe. | Not suitable for all decisions: Cannot be used for removing directors or auditors. |
| Faster decision-making: Can be quicker than arranging and holding a general meeting. | Potential for miscommunication: Without face-to-face interaction, there’s a risk of misunderstanding the resolution’s implications. |
| Higher voting threshold required: Shareholders holding more than 50% of at least 75% of all the shares will need to sign the resolution to pass as an ordinary/shareholder resolution, rather than just considering the shareholdings of those present at a meeting. |
Key Takeaways
A written resolution is an alternative way for shareholders to vote on a resolution that requires their approval to become effective. Importantly, the company does not need to convene a general meeting. This saves considerable time and expense. Instead, the shareholders have a specified timeframe to signal their support. If the requisite number does so, the resolution passes. Otherwise, it does not pass.
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Frequently Asked Questions
A shareholder resolution is a resolution passed either at a general meeting or via the written resolution procedure.
A written resolution allows shareholders to vote on a resolution without having to attend a general meeting.
Both directors and shareholders holding 5% or more of total voting rights can propose a written resolution.
No. Removing an auditor requires a general meeting and cannot be done via written resolution.
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