Resolutions of Private Companies Limited by Shares
Baher Saleh
International Associate
Definition and Methods of Passing a Resolution in the Context of the Act:
A resolution, as defined by the Act signifies a formal decision passed by the members (shareholders) of a company. The Act outlines two main ways for a private company limited by shares in the UK to issue a resolution: members can either approve it in writing or pass it during a meeting, as Section 281(1) of the Act details. This formal decision-making process is instrumental in corporate governance, empowering members to articulate their intentions regarding the company’s affairs.
Section 281 not only discusses the procedural aspects of resolutions but also clarifies on a specific type, the ordinary resolution. Notably, Section 281(3) addresses instances where the Act does not specify the type of resolution required for voting on any company matter; under such circumstances, the default is an ordinary resolution, unless stipulated otherwise by the company’s articles of association, which may demand a more significant majority.
Types of Resolutions in a Private Company Limited by Shares:
1. Ordinary Resolution: Section 282 requires members to approve an ordinary resolution by a simple majority. The section also explains the ways members can pass an ordinary resolution:
– By written resolution (Section 282(2))
– At a meeting, on a show of hands (Section 282(3))
– By a poll taken at a meeting (Section 282(4))
2. Special Resolution: Discussed in Section 283(1), special resolutions mandate a majority of no less than 75% of the eligible voting rights. The methods for passing a special resolution are similar to those designated for an ordinary resolution.
Issuance of a Resolution by Way of a Written Resolution:
Section 288(2) delineates specific prohibitions regarding the utilisation of a written resolution, disallowing its use for:
– Removing a director prior to the culmination of their term (Section 168).
– Removing an auditor before the conclusion of their term (Section 510).
A written resolution may be initiated by either the directors or the members of the company. Should it be proposed by the directors, the company is required to circulate the proposed resolution to every eligible member, as defined in Section 289(1), implying members authorised to vote on the resolution on the circulation date—the date on which copies of the written resolution are made available to members, pursuant to Section 290.
Moreover, Section 291(4) mandates that a written resolution proposed by directors should be complemented with a statement detailing how members may signify agreement with the resolution and the deadline for its approval to avoid its annulment.
When members propose a written resolution, Section 292 allows those holding at least 5% of the total voting rights (or a smaller percentage if the company’s articles allow) to require the company to send the proposed resolution to all eligible members. Concurrently, Section 292(3) allows these members to require the company to distribute a statement regarding the subject matter of the proposed resolution, capped at 1,000 words.
Finally, Section 293(3) obligates the company to circulate the member-proposed resolution within 21 days of receiving the circulation request from the requisitioning members (members who proposed the resolution and those who required the company to circulate the resolution). This resolution must be accompanied by a statement similar to that required for resolutions proposed by directors, explaining how to express agreement and the deadline for the resolution’s passage.
Conclusion
The Act provides a clear outline for making decisions in private companies limited by shares through ordinary and special resolutions. It is vital for shareholders and directors to understand this framework to ensure transparent and practical decision-making within a company. Additionally, by using written resolutions, companies can tackle important matters and align their actions with the collective will of their members more quickly, thereby steering the company towards its strategic goals and serving the best interests of its shareholders.
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Disclaimer: This Article is Not Legal Advice
This article gives a basic overview of resolutions under the Companies Act 2006, focusing on how private companies limited by shares pass resolutions and the types involved. It’s not legal advice. Since every company’s situation differs, you should get tailored advice from a qualified legal expert. This article is for information only and doesn’t replace professional legal guidance.
