Summary
- Shareholders approve key company decisions through ordinary or special resolutions.
- Ordinary resolutions require more than 50% approval, while special resolutions require at least 75%.
- Special resolutions are reserved for significant changes and involve additional procedural requirements, including filing obligations.
- This article explains ordinary and special resolutions for business owners in the United Kingdom.
- Prepared by LegalVision, a commercial law firm that specialises in advising clients on corporate law.
Tips for Businesses
Review your articles of association to confirm which decisions require shareholder approval and at what threshold. Plan ahead for special resolutions, as a 25% minority can block them. Ensure meeting notices include clear details, and comply with filing requirements to avoid penalties or invalid resolutions.
Shareholders have the power to make the most important decisions concerning the company. Shareholders make these decisions by either voting for or against a resolution put to them at a shareholder meeting (whether an annual general meeting or general meeting) or through a written resolution. There are two kinds of resolutions: ordinary and special resolutions. This article will explain the function of shareholders voting at shareholder meetings, the distinction between an ordinary and special resolution, and which measures must be passed by special resolutions.
Overview of a Shareholder Meeting
Company directors make most of a company’s day-to-day decisions. However, there are specific measures that the shareholders must approve. Some common examples include matters to:
- approve an expensive transaction;
- appoint or remove a director;
- issue more shares;
- change the company’s articles of association or the company’s name; and
- authorise a transaction benefitting one or more of the company’s directors.
A company’s articles of association will list measures that require shareholder approval and on what basis. Likewise, your company’s articles state whether shareholders must pass a measure via an ordinary resolution.
The notice period for shareholder meetings is important and varies depending on the type of company and resolution. Private companies generally need 14 clear days. However, shorter notice periods may be acceptable if a sufficient majority of shareholders agree. The notice must include all relevant information about the proposed resolutions, including explanatory statements for complex matters, to ensure shareholders can make informed decisions.
Additionally, many private companies allow specific measures to be voted on via written resolutions and do not require holding an actual meeting.
Ordinary Resolutions
An ordinary resolution requires more than 50% of shareholders’ votes to pass. This threshold is also called a simple majority. For more complex matters, a higher threshold may be required.
If the vote is one by hand, each shareholder’s vote counts for one vote, and more than half the shareholders must approve the resolution to pass. If the vote is a poll vote, where each shareholder has as many votes as they have voting shares, then a majority of the votes cast approve the resolution.
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Special Resolutions
A special resolution requires 75% or more of the shareholders to approve it for it to pass. IIf conducted by a show of hands, at least 75% of shareholders present and voting must approve (one vote per shareholder). If conducted by a poll, at least 75% of votes cast must approve (one vote per share).
Special resolutions function to protect minority shareholders. A minority holding 25% or more of the voting shares can block a special resolution from passing. By requiring a higher threshold, special resolutions ensure changes benefit a large majority of shareholders.
Unlike an ordinary resolution, exactly 75% approval is sufficient to pass.
Further Considerations
With two exceptions, any resolution capable of being passed as an ordinary resolution can be passed by a special resolution. The exception to this rule is where a resolution concerns the removal of either:
- one or more of the company’s directors; or
- the company’s auditors.
Separately, not all special resolutions can be passed by ordinary resolutions. Corporate law reserves certain matters for approval only by the higher threshold required by a special resolution. Otherwise, subject to your company’s articles, an ordinary resolution is all that is required to pass a measure. Consequently, unless your articles specifically state otherwise, the law assumes an ordinary resolution is sufficient.
Matters Reserved for Special Resolutions
The law considers certain matters to be so important to the heart of the company’s management that 75% or more of the shareholders must approve any changes. The following is a non-exhaustive list of the most common reserved matters you are likely to come across:
- amending your company’s articles;
- changing your company’s name;
- changing your company from a private to a public company (or vice versa);
- disapplying the shareholders’ rights of first refusal following a new allotment of shares;
- reducing your company’s share capital or instituting a share buyback;
- changing any rights attached to the company’s shares; and
- approving the sale of the company to another buyer.
Practical Matters
When drafting your company’s articles (or evaluating any amendments), you should determine which matters you want to reserve for special resolutions. This is ultimately a commercial decision determined by your relationship with other shareholders.
Alternatively, if you are one shareholder among several, each of which holds equal numbers of shares, you will want to consider what power you have to block special resolutions. If you own 25% or more of the voting shares, you can unilaterally defeat any special resolution. If you own less, you would have to coalition with other shareholders to defeat a proposed special resolution.
This template helps you document important and major decisions or actions reached in board meetings.
Key Takeaways
Shareholders do not run the company on a daily basis, but there are certain measures they may have the right to approve. By law, your company must pass these measures via an ordinary or special resolution. An ordinary resolution requires more than 50% of the shareholder vote, whereas a special resolution requires at least 75% of the votes.
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Frequently Asked Questions
An ordinary resolution is any matter put to a shareholder vote that requires more than 50% shareholder approval.
A special resolution is any matter put to a shareholder vote that requires 75% or more shareholder approval.
If a company fails to file a special resolution with Companies House within the required 15-day timeframe, the company and its officers may face penalties. The company could be fined, and in serious cases of non-compliance, officers may face personal liability.
Additionally, the resolution may not be legally effective until properly filed, which could create complications for transactions or changes that depend on the resolution’s validity.
Yes, shareholders have the right to demand a poll vote in most circumstances. Under the Companies Act 2006, a poll can be demanded by the chairman of the meeting, directors, shareholders holding at least 10% of voting rights, or at least five shareholders with voting rights.
A poll vote is often more accurate as it reflects the actual shareholding percentages rather than just the number of shareholders present, making it particularly important for special resolutions where precise vote calculations matter.
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