Member resolutions: what are they and which type do you need?

Day-to-day operation of a company is handled by the board of directors. There are, however, certain important decisions which need to be made by the company’s members – these are member resolutions (resolutions).

Resolutions are used for important decisions including, for example, changing the company’s articles of association (articles) or authorising directors to allot shares. The Companies Act 2006 (CA 2006) specifies when an ordinary or special resolution is required, but a company’s articles may also identify additional situations requiring member approval and may impose a higher majority or other procedural requirements.

Understanding whether a resolution is needed (and, if so, which type) can help you make decisions efficiently and avoid costly procedural mistakes. The key questions are:

• Whether member approval is required
• If so, what level of member approval is required

How the resolution will be passed.

What is a resolution?

The terms used to describe resolutions reflect either the approval threshold or the procedure followed. An ordinary resolution requires a simple majority of more than 50%, while a special resolution requires a higher majority of 75% or more.

In addition, a written resolution is a way of passing both ordinary and special resolutions without holding a meeting of the members, which significantly reduces the administrative and logistical work involved.

What is an ordinary resolution?

An ordinary resolution requires a simple majority, meaning that more than 50% of the relevant votes must support the proposal. The voting rules depend on the method used: at a meeting, votes may be taken by a show of hands or on a poll; alternatively, eligible members of a private company may approve the resolution in writing.

The CA 2006 expressly requires ordinary resolutions for a range of matters. These include:

• Removing a director
• Approving certain directors’ service contracts and transactions involving directors
• Appointing or removing auditors in specified circumstances
• Authorising directors to allot shares.

Where the CA 2006 requires a resolution but does not specify the type, an ordinary resolution is the default unless the articles require a higher majority or unanimity. Anything that can be approved by ordinary resolution may also be approved by special resolution.

The company must record the resolution and retain evidence that it was properly passed. Most ordinary resolutions do not need to be filed at Companies House, but there are important exceptions. For example, a resolution granting or renewing directors’ authority to allot shares must be filed.

What is a special resolution?

A special resolution requires approval by a majority of not less than 75% of the relevant votes or voting rights. At a meeting, the calculation depends on whether the resolution is decided on a show of hands or on a poll. A written resolution requires approval from members representing at least 75% of the total voting rights of eligible members.

A special resolution is commonly required for important constitutional decisions. The CA 2006 also specifies a number of other matters which must be approved in this way, including certain changes to a company’s share capital, reductions of capital and winding-up decisions. The company’s articles may also require a special resolution, or a higher majority, in additional circumstances.

Companies can also address in their articles the circumstances in which ordinary or special resolutions are required, together with any additional notice, voting or procedural requirements.

A special resolution tends to be used for more significant corporate decisions, including changing the company’s articles. The notice of a meeting, or the written resolution itself, must state that the resolution is being proposed as a special resolution. The company should also check its articles and the relevant statutory provision to confirm the required procedure, voting rights and any filing obligations. It is worth noting that, in contrast to ordinary resolutions, all special resolutions must be filed at Companies House.

What is a written resolution?

A written resolution involves the circulation of a resolution (whether ordinary or special) to the company’s members. It is only available for private companies. As it does not involve the calling and holding of a members meeting (for which there is a specific statutory process to follow, in addition to any further obligations imposed by a company’s articles) a written resolution is a convenient and generally faster method of passing a resolution.

Written resolutions do, however, alter the landscape of a vote. For a company limited by shares, a vote at a meeting of the members can be on a show of hands (i.e. 1 vote per shareholder); a written resolution, however, is always a poll vote (i.e. 1 vote per share).

Additionally, a written resolution will always be a vote of all the members; it is an obligation that all members receive the written resolution (and a failure to reply will constitute a rejection of the proposed resolution). In contrast, a resolution at a meeting is limited to the members attending that meeting, either in person or by appointing a proxy.

It is also worth noting that, under s.288 of the CA 2006, certain decisions cannot be approved by written resolution, including the removal of a director by the members.

How we can help

The Corporate Governance team at Thomson Snell & Passmore can give you clear, practical advice on the resolution your company needs, as well complying with any specific statutory processes a resolution sits within. We can also prepare and circulate the documentation, check that the correct approval has been obtained and deal with any required Companies House filings.

Getting the process right at the outset can help avoid delay, uncertainty and unnecessary corrective costs. Please get in touch for more information.