What is a Shareholder Resolution in England and Wales?

When running a business, you will often need to make decisions that require shareholder approval. Shareholder resolutions are an important way of carrying out strategic goals, and understanding the different types of resolution is valuable if you intend to push through certain commitments at your company. 

This article will explain what a shareholder resolution is, what the different types of shareholder resolution are, and some key points to keep in mind if you are dealing with shareholder proposals.

What is a Shareholder Resolution?

A shareholder resolution occurs when the shareholders of a company submit a proposal (in the form of a written resolution). This proposal will concern an action that the company should take. The company will hold a vote as to whether the shareholders’ resolution should pass. Typically, a company will invite everyone who has voting rights to vote at its annual general meeting. 

Publicly listed UK companies must hold at least one general meeting a year. Private companies, on the other hand, can choose to hold general meetings when they wish. 

In a general meeting, the board of directors will also typically put forward a number of resolutions that deal with administrative considerations. These can include appointing auditors, electing potential directors, and accepting the company’s annual report. 

At the same time, shareholders can put forward their own proposals by meeting a quorum. The board will discuss and vote on these at the meeting. In this way, shareholder proposals can influence the priorities of the business. For example, shareholders may wish to bind the company to certain sustainability and corporate responsibility commitments. These can include meeting greenhouse gas emissions targets or human rights obligations. 

What are Shareholder Rights?

When you create a limited company, you will also have to create its articles of association. The company’s articles (sometimes referred to as its constitution) will set out the rights and obligations of directors and shareholders. At the same time, the Companies Act 2006 outlines some more general rights that all shareholders have, and this applies to all companies in England and Wales.

Some common shareholder rights include:

• voting rights at general meetings; and
• a right to dividends.

Not all shareholders will have voting rights, however. At the same time, some shareholders may have special rights. These include a right of consultation regarding important company decisions or weighted voting rights.

Can Shareholders Require a General Meeting?

Shareholders have the power, under the Companies Act 2006, to require company directors to hold a general meeting. They can put forward any resolutions that they wish for the company to consider at this meeting. 

This will require the mandate of at least 5% of the total shareholders of the company. As a result, one individual who holds over 5% can call a general meeting. Similarly, a number of shareholders whose total shares add up to 5% can also call a general meeting.

At the same time, shareholders of a publicly listed company can request a general meeting to vote on a resolution. To do this, at least 5% of shareholders with voting rights must agree to the resolution in question. 

Alternatively, 100 shareholders who have been paid up an average of at least £100 per shareholder can also achieve the same effect through requesting the resolution to be considered. When doing this, shareholders can also request that a statement (of up to 1000 words) is circulated to all voting shareholders before the general meeting. 

Why Pass a Shareholder Resolution?

A shareholder resolution is not binding on the company. In other words, it does not create a legal obligation for the management of the business to fulfil every aspect of the resolution. However, a company’s articles may outline certain things that will happen if a resolution is successful. 

As a company owner, you will want to be very conscious of adding value to your shareholders and also making sure that they feel listened to. Effective shareholder management can help attract great investment into your business, which will allow you to reinvest money into operations and innovation, while also paying greater dividends to shareholders and to yourself. 

Because of this, you should not take a shareholder resolution which seeks to commit your company toward strategic goals lightly. As a result, shareholder resolutions are a valuable way of putting certain issues on your company’s agenda while attracting media attention, as well as prompting your company into action. Institutional investors, for example, might want to ensure that your company is meeting corporate responsibility goals through shareholder resolutions.

Key Takeaways

As a business owner in England and Wales, you will want to know of the ways in which shareholders can pass a resolution which will mandate you to take an action. The rules for public and private companies are different, with public companies closely regulated by the Companies Act 2006. As a result, it is a good idea to clue yourself up with the voting rights that shareholders have. 

On the whole, it is a good idea to listen to shareholder resolutions if they are passed, as they can give you a good indicator of the values of your shareholders, which can in turn help you add value to them. 

If you have any further questions regarding shareholder resolutions, 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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