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As a limited company in England and Wales, you should ensure you are familiar with the different ways your business can pass a resolution. In some cases when you are making important decisions, you may have to pass a special resolution. An important feature of special resolutions is that they require more than a simple majority to pass.
This article will explain what a special resolution is, some of the rules surrounding special resolutions, and when you may have to use one.
What is a Special Resolution?
A special resolution is a company resolution that requires a 75% majority in a vote held with shareholders. In contrast, an ordinary resolution requires a simple majority of over 50% of votes in favour of the resolution.
Certain important decisions require a company to make a special resolution. The Companies Act 2006 outlines certain decisions that companies can only make via special resolution. Some examples include:
- reducing the company’s share capital;
- changing the companies status by registration, for example, changing from a limited company to a partnership;
- purchasing the company’s own shares;
- changing the company’s articles of association;
- changing the company’s name; and
- making the company insolvent.
Further, a company can also mandate that its board make certain decisions via special resolutions. They can do this by writing it into the company’s articles of association, or constitution.
Why Use a Special Resolution?
The purpose of a special resolution is to protect minority shareholders when a company makes important decisions. It allows for a 25% minority to overrule a decision. This means that a majority cannot simply push through actions at a board meeting if it is discriminatory against minority shareholders.
Alongside this, using a special resolution also helps ensure the company is properly considering and judging decisions. Having more support than just a simple majority means that the decision is likely to be in the better interest of all shareholders. This is because the majority have to win most of the support of the minority.
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How Would a Company Pass a Special Resolution?
Like most company resolutions, a special resolution is considered at a company meeting. This can be a general board meeting, but it could also be a company annual general meeting.
Summary of the Rules
In summary, certain decisions can sometimes necessitate using a special resolution.
There are two instances where this is true. That is:
- if a company must make a decision by special resolution as per the Companies Act 2006; and
- if the company’s articles require it to make a decision by special resolution.
To pass a special resolution, at least 75% of eligible votes must be cast in the vote. On top of this, you will also need a 75% majority voting in favour of the motion. Shareholders can vote either through a show of hands, a poll, or a written resolution.
By using special resolutions, your company can avoid making decisions by simple majority vote and therefore protect the interest of minority shareholders to a greater degree. At the same time, it can also make sure that certain decisions are made rigorously and have the support of a large majority of your overall shareholders.
Key Takeaways
As a limited company, you may have to use special resolutions to pass certain actions. Often, this is used when it is required by the Companies Act, such as when your company wants to change its name. In some cases, however, your company’s constitution may require you to make some changes only via a special resolution.
To pass a special resolution, you will need at least 75% of the eligible votes to be cast, and you will need at least 75% of those votes to vote in favour of the decision. If you have any questions about special resolutions, or need help navigating one, 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.
Frequently Asked Questions
The Companies Act 2006 specifies certain parts of English company law, including when special resolutions are necessary.
A shareholder is an individual who owns shares in a company. Shareholders have certain rights, which typically include a right to vote at general meetings and a right to dividends.
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