A guide to limited company resolutions

The majority of routine, day-to-day decisions in private limited companies are made by directors. However, significant matters that go beyond the scope of the directors’ powers must be decided by the company shareholders. These types of shareholder decisions require shareholder resolutions, which can be passed at a general meeting or in writing.

To pass a company resolution, which may be ‘ordinary’ or ‘special’, shareholders must cast their votes in favour of a proposed course of action.

Below, we explain ordinary and special resolutions, how they differ, and how to pass them in a limited company.

What are ordinary resolutions?

There are two main types of resolutions in a limited company: ordinary and special. Shareholders use both in situations where the directors have no authority to make a decision.

• Our All Inclusive Package - the perfect way to set up a limited company
• A guide to the Register of People with Significant Control (PSC)
• Never miss another confirmation statement deadline

An ordinary resolution can be described as ‘ordinary’ or routine decisions made by the shareholders. It requires more than 50% of the eligible votes to be cast in favour of it to be passed.

What are special resolutions?

A special resolution requires at least a 75% majority vote to be passed. Limited companies use special resolutions for more complex or extraordinary matters, hence their requirement of a higher majority vote.

Remember, not all shareholders have voting rights, so only ones that do may vote on shareholder resolutions.

What is a written resolution?

A written resolution is a different way of passing a resolution. Instead of the resolution being passed at a meeting, it is passed in writing, usually with all shareholders signing a document confirming their approval of a set of resolutions.

Written company resolutions can be proposed by the directors or by the shareholder(s) themselves (where they hold at least 5% of the voting rights in the company).

All shareholder decisions in a private limited company can be resolved by written resolution, with the exception of the removal of a director under section 168 of the Companies Act 2006 or the removal of an auditor.

Additionally, it should be noted that public limited companies (PLCs) are not permitted to use the written resolution procedure in any circumstance.

Decisions that require company resolutions

Both the Companies Act 2006 and the company’s articles of association will state the extent of the directors’ powers and which matters can be passed by ordinary resolution. Typically, decisions that must made by ordinary resolution of the shareholders include:

• Paying dividends
• Appointing and removing directors
• Approving directors’ service contracts
• Approving directors’ loans
• Allotting new shares

Please note: written company resolutions cannot be used to remove a director or auditor.

The Companies Act 2006 and the articles of association will outline which decisions require a special resolution. This type of resolution is most commonly used to:

• Alter the articles of association
• Change a company name
• Restructure a company
• Disapply the pre-emption rights of shareholders
• Wind up a company

Shareholders can stipulate the need for a special resolution for other decisions, but this must be clearly stated in the articles of association.

What is the notice period for proposed company resolutions?

1. Proposed company resolutions at a general meeting

The notice period for a proposed ordinary or special resolution at a general meeting is 14 days. However, where a resolution is proposed to remove a company director or auditor, a special 28-day notice is required. The director or auditor in question must also be informed, and a special procedure must be followed.

In addition to the time, date, and location of a general meeting, the notice must state the intention to propose a resolution and its nature. A copy should be provided to all members and sent to the auditor if the company has one.

2. Proposed written resolutions

The procedure for written company resolutions is slightly different, so there isn’t a “notice period” per se. Each shareholder must be given a copy of the resolution in paper or electronic form. This should be accompanied by a statement outlining how the members must indicate their agreement and the deadline for passing the resolution.

Under the law, the deadline for passing a written resolution is 28 days from the date the resolution is circulated amongst the shareholders. After this period, unless it has been passed, the written resolution lapses.

Who must receive a copy of proposed company resolutions?

Proposed resolutions should be sent to all eligible members (those entitled to vote) and the company auditor (if applicable), either in writing or electronic format.

If a resolution to remove a director is proposed at a general meeting, the director who is proposed to be removed must also receive a copy.

How to pass company resolutions

Resolutions in private limited companies can be passed at a general meeting either by a poll or show of hands. Alternatively, they can be passed by a written resolution, in which the shareholder indicates their agreement in the manner the company requests.

If the required number of votes is achieved, the resolution is passed, and the decision is legally binding.

How are votes counted?

To determine whether the required majority has been achieved, the number of voting shares must be counted, not the number of shareholders who vote. Most shares will carry one vote each, but shareholders can own varying quantities of shares, and in some companies, there may be multiple share classes, each carrying more than one vote.

The exception to this is if the votes are being counted at a general meeting by a show of hands, in which case it is taken as “one member, one vote” (in such cases, a poll can then be demanded so that the number of votes individual each shareholder actually holds can be taken into account).

Furthermore, if the resolution is voted on at a general meeting, then the number of votes ‘for’ is taken as a percentage of the total voting rights in attendance at the meeting, rather than the total voting rights in the company.

For example, in a company of four equal shareholders where one shareholder does not attend a meeting, to pass an ordinary resolution at the meeting requires only two of the remaining three shareholders to vote in favour, as they represent a majority (greater than 50%) of the voting rights in attendance.

If the resolution had been voted on using a written resolution, however, it would have taken at least three shareholders to approve so as to achieve greater than 50% of the total voting rights in the company.

If the required majority of votes is obtained, the resolution is passed. If not, the proposed resolution is rejected.

How to record company decisions

Company decisions must be recorded by taking minutes of all general meetings and copies of resolutions that were passed. Copies of minutes and company resolutions must be kept at the registered office or SAIL address for at least 10 years and made available for inspection.

Statutory company records and registers must also be updated accordingly, where required.

Filing resolutions with Companies House

When you make changes to your limited company, you usually need to tell Companies House. Special resolutions must be delivered to Companies House by post within 15 days of being passed. They cannot be delivered electronically.

Ordinary resolutions do not generally need to be delivered to Companies House, and should simply be stored in your company’s records as standard. That said, there are some ordinary resolutions which the Companies Act 2006 specifically requires to be submitted if passed, so you should check this beforehand.

How long must a company keep copies of resolutions?

Copies of company resolutions must be kept for a minimum of 10 years from the date they are passed, as well as any minutes of meetings. These records must be kept at a company’s registered office or SAIL address, where they must be made available for inspection upon request.

Thanks for reading

So, there you have a simple guide to limited company resolutions. Please leave any questions or comments you might have on the topics discussed below, or visit the 1st Formations blog for more handy resources on starting and running a company.