Company resolutions – ordinary and special
It’s always useful for Limited Company contractors to know a little about some of the basics of the legal aspects of running their business. One important area to be aware of is how company resolutions work as these are used for doing a variety of things within your company, like issuing shares and making changes to how your business operates.
What is a resolution?
A resolution is defined as an agreement or decision made by the directors or members of a company. The proposed resolution must be voted on and a majority ‘yes’ or ‘no’ vote decides if the resolution is passed. Once a resolution is passed the company is then officially bound to it. For contractors – who are often the sole director of their own companies – this basically means that it formalises their own decisions about their company.
There are a total of eight different types of resolution possible but the two that will most frequently be used by contractors are known as an Ordinary resolution and a Special resolution. For these types of resolution Companies House must be sent a copy within 15 days of the resolution being made or passed.
What is an Ordinary resolution?
Ordinary resolutions are the most widely used as they are suitable for all usual business matters within the company. The only exceptions to this are where either the company’s articles of association or the Companies Act states that a different type of resolution must be used.
Key features of an ordinary resolution are:
- They can be passed by a simple majority of votes made by directors and members who are entitled to vote.
- The length of notice required before proposing an ordinary resolution will depend on the type of meeting that the resolution will be discussed at, but can potentially be done at short notice.
In addition, certain types of ordinary resolution must be filed at Companies House:
- Resolutions to give, vary, revoke or renew an authority to the directors to allot shares.
- Resolutions to give, vary, revoke or renew an authority to the company to make a market purchase of its own shares.
- Resolutions to prevent or reverse a directors’ resolution to allow title of shares to be evidenced or transferred without a written document.
- Resolutions to authorise an increase of share capital.
What is a Special Resolution?
As the name suggests Special resolutions are for proposing changes which may potentially have a big impact on the business. As such, they require a larger number of eligible members to vote in favour of them in order to be passed.
Key features of a special resolution are:
- They require a 75% majority vote by eligible members to be passed.
- The usual length of notice required before proposing a special resolution is 21 days, unless the company’s articles of association state otherwise. However, if the resolution is being proposed within a general meeting it is allowable for this notice period to be reduced.
- Within 10 days of the special resolution being passed the company must file a statement of the results of the vote and consent process and a copy of the resolution must be filed with the company’s registrar.
Special resolutions are mentioned in the Companies Act 2006 and are required for major transactions within the company including:
- Making amendments to the company’s articles of association
- Making a reduction in share capital
- Giving approval for the issue of shares
- Re-registration of an unlimited company as a Limited Company (and the other way round
- To authorise actions by the company or its director(s) which are in excess of their stated authority
- When changing the company’s name
- When authorising compensation for directors
- To revoke a resolution
- When winding up the company either due to a court order or voluntarily
At Intouch our clients can contact their personal Intouch accountant if they are in any doubt about what kind of resolution they should use, or if they need further advice on how to proceed with one. With our personal touch, professional expertise and practical experience we help make running your business easier.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.