What Are Ordinary Versus Special 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. 

Additionally, many private companies allow specific measures to be voted on via written resolutions and do not require holding an actual meeting.

Shareholders with at least 5% of the company’s shares can request that the directors convene a meeting or circulate a written resolution on their behalf. Finally, you can pass resolutions at the annual general meeting or a specially convened 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 shareholders must approve the resolution. 

Special Resolutions

A special resolution requires 75% or more of the shareholders to approve it for it to pass. If the vote is a show of hands, then 75% or more of the shareholders voting must approve it. If the vote is a poll vote, 75% of available votes must be cast to approve the resolution. Special resolutions function to protect minority shareholders; a 25% minority is able to overtake the majority. Additionally, be imposing a higher threshold, special resolutions ensure that company changes are set to benefit a large majority of shareholders.

Unlike an ordinary resolution, if exactly 75% of the votes are cast in favour of the resolution, then this is sufficient to pass the resolution.

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. 

For instance, suppose you are the sole shareholder in your company, but you are considering an equity capital raise. Any share allotment that reduces your share below 75% means that any matters requiring a special resolution can be halted by 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.

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. 

If you need help asserting your rights as a shareholder, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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