What is a Special Resolution in England and Wales?

Summary

• A special resolution needs a 75% majority, and the Companies Act 2006 reserves decisions such as changing the articles of association, reducing share capital and changing the company name for one.
• At a general meeting the 75% counts the votes actually cast, but a written resolution needs 75% of the total voting rights of all eligible members.
• Companies must file a special resolution at Companies House within 15 days, and failing to do so is a criminal offence.
• This guide explains special resolutions for company directors and shareholders in England and Wales.
• LegalVision’s business lawyers advise companies on drafting shareholder resolutions, passing decisions where a minority shareholder objects, and meeting Companies House filing deadlines.

Tips for Businesses

State the exact wording of the resolution in the notice of meeting, and label it a special resolution. Give private company shareholders 14 clear days’ notice, unless enough of them agree to shorter notice. Read your articles and shareholders’ agreement, because both can reserve extra decisions for a special resolution. Speak to a business structuring lawyer at LegalVision about passing a special resolution over a minority objection.

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On this page

• What is a Special Resolution?
• Why a Special Resolution?
• How Would a Company Pass a Special Resolution?
• Key Takeaways
• Frequently Asked Questions

A special resolution is a shareholder decision that needs a majority of at least 75% to pass. In England and Wales, the Companies Act 2006 sets that threshold and lists the decisions that require one. Changing the articles of association, changing the company name and reducing share capital all need a special resolution. At a general meeting, 75% of the votes actually cast must support the resolution. A written resolution sets a higher bar, because it needs 75% of the total voting rights of all eligible members. Companies must file a special resolution at Companies House within 15 days, and it then becomes public. This article explains what a special resolution is under English and Welsh company law, which decisions require one, how the 75% threshold works at a general meeting compared with a written resolution, and how to pass a special resolution without holding a meeting.

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What is a Special Resolution?

A special resolution is a shareholder resolution that requires at least 75% of votes to pass. 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
• approving long-term service contracts with directors 
• approving substantial property transactions with directors in some cases 
• disapplying pre-emptive rights on the issue of equity securities t. 

Under the Insolvency Act, a special resolution is also needed when approving a voluntary wind up of the company.

The shareholders and company may also agree in the articles of association or separate shareholders agreement that certain other matters (like undertaking an initial public offering, a business sale, or changing share class rights) require a special resolution.

Why 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 and the majority cannot simply push through actions. 

How Would a Company Pass a Special Resolution?

There are certain rules as per the Companies Act 2006 as to how companies must pass special resolutions: 

• if 75% of individuals who are eligible members (in other words, have the right to vote) cast their vote at a general meeting, there must be a 75% majority through a show of hands. This means that, for a vote to be valid, at least 75% of all of the eligible votes must be counted;
• if 75% of individuals who are eligible members cast their vote at a general meeting during a poll, then the same rule applies regardless of whether they vote in person, by proxy, or in advance; and
• if the company decides to use a written resolution, then it must also consist of at least 75% of all eligible votes voting in favour of the decision.

It is worth noting that special resolutions must be filed with Companies House within 15 days of being passed. This filing requirement ensures transparency and creates a public record of significant company decisions. The resolution will then appear on the company’s public record, which can be accessed by anyone searching the company’s details.

Passing a Special Resolution as a Written Resolution

Private companies do not have to hold a general meeting to pass a special resolution. A written resolution achieves the same result without anyone gathering in a room. The threshold works differently, though, and the difference catches companies out. A written special resolution needs members holding at least 75% of the total voting rights of all eligible members. A shareholder who simply ignores the paperwork therefore counts as a vote against.

Directors circulate the resolution to every eligible member at the same time, in hard copy or electronically. The document must state that it proposes a special resolution, or the resolution does not qualify as one. Members signify agreement by signing and returning the document, or by replying to an electronic communication. A proposed written resolution lapses if it does not pass within the period the Companies Act 2006 allows. Late agreement does not count. Check your articles before you start, because they can set a different response period.

Shareholders cannot remove a director or an auditor before the end of their term by passing a written resolution. Those decisions need a general meeting.

“The threshold is the part everyone remembers, and the part that catches people out is whose votes you count. At a general meeting you count only the shareholders who turn up and vote, but on a written resolution a shareholder who never opens the envelope has effectively voted against you. Where you have a disengaged minority shareholder, hold the meeting.”

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. 

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Frequently Asked Questions