MEMBERS' RESOLUTIONS Quick Guide
Members' Resolutions Before a company can take certain steps, it must obtain the approval of the members of the Company. This is achieved by proposing a resolution to the members and seeking their approval of that resolution. This guide sets out, in brief, the law regarding resolutions of the members of private companies, including how they are passed and which resolutions are required under the Companies Act 2006 (the Act). It is important to remember that a company's articles of association (the Articles) may set out rules which differ from the provisions of the Act. Accordingly, the content of this note and of the Act itself should always be read in accordance with the Articles.
Proposing a Resolution Resolutions can be proposed either as a written resolution or at a general meeting of the members of the company and they may be proposed either by the directors or, in certain circumstances, by the members themselves. At Meetings A resolution can be validly passed at a general meeting of the company provided that:-
due notice of the meeting and details of the resolution to be proposed at that meeting are given to all persons entitled to receive such notice; and
the meeting is then duly convened in accordance with both the provisions of the Act and with the Articles.
Under Section 303 of the Act, a member can require a general meeting to be held and is entitled to require a resolution to be put before any general meeting so requested. The terms of the resolution to be proposed at the meeting should be included in the member's request for the meeting to be held. The criteria above apply equally to a meeting requested by a member under Section 303. Written Resolution- circulation by Directors Where the directors decide to propose a written resolution, it is best practice to maintain the board minute which records that decision and the reasons for it. Once the terms of the resolution are decided upon, all eligible members must be sent:-
a copy of the resolution, which may be in hard copy, in electronic form or through a website;
a statement explaining how the member can agree to the resolution; and
a note of the date by which the resolution must be passed or on which it will lapse if not passed.
If possible, the same copy of the resolution should be passed to each member in turn. Where this is not practical, separate copies should be sent to each eligible member but all copies should be sent at the same time, as far as it is possible to do so. Once circulated to members, the resolution cannot be withdrawn.
Members' Resolutions | Page | 1
Written Resolution- circulation by Members Under Section 292of the Act, members can require a written resolution to be circulated (and can also require circulation of a related statement of up to 1,000 words) provide the member (or members) making the request:-
hold 5% or more of the total voting rights (or any lower percentage set by the Articles); and
the resolution in question would be effective if passed and is not defamatory, frivolous or vexatious; and
the request identifies the resolution and any accompanying statement and is authenticated by those members requiring circulation; and
any expenses which the company will incur in circulating the resolution have been met.
A company is bound to circulate any resolution so requested where these criteria have been met within 21 days of becoming required to do so.
Passing Resolutions Under the Act resolutions are either:
expressly required to be passed as an ordinary resolution (a note of these resolutions is set out in Annex A); or
specified to be passed as a resolution, without expressly specifying what kind of resolution is required - in that case, the resolution will require an ordinary resolution unless the Articles specify otherwise; or
expressly required to be passed as a special resolution (a note of these resolutions is set out in Annex B); or
expressly required to be passed by a specific percentage of the members of the company (a note of these resolutions is set out in Annex C).
The Act provides that anything that may be done by an ordinary resolution may also be done by a special resolution, unless the Articles provide that a higher percentage is required. An ordinary resolution is defined in the Act as "a resolution that is passed by a simple majority" while a special resolution is defined as "a resolution passed by a majority of not less than 75%".
Members' Resolutions | Page | 2
The table below illustrates what these terms mean in practice, which depends on the means by which the resolution is to be voted upon.
At A Meeting On A Show Of Hands
On A Poll Taken At A Meeting
As A Written Resolution
Ordinary Resolution
By a simple majority of the votes cast by those entitled to vote
By members representing a simple majority of the total voting rights of eligible members
Special Resolution
By not less than 75% of the votes cast by those entitled to vote
By a simple majority of the total voting rights of members who, being entitled to vote, do so in person, by proxy or in advance By members representing 75% (or more) of the total voting rights of members who, being entitled to vote, do so in person, by proxy or in advance
By members representing at least 75% of the total voting rights of eligible members
Filing Requirements In terms of Section 30 of the Act, a company must file a copy of certain resolutions at Companies House within 15 days of the resolution being passed. Where a resolution is passed other than in writing, a written memorandum setting out the terms of the resolution must be filed. In practice, this memorandum takes much the same form as a written resolution. Section 29 specifies that the following resolutions must be filed:
all special resolutions;
any resolution or agreement agreed to by all the members of a company that, if not so agreed to, would not have been effective for its purpose unless passed as a special resolution;
any resolution or agreement agreed to by all the members of a class of shareholders that, if not so agreed to, would not have been effective for its purpose unless passed by some particular majority or otherwise in some particular manner;
any resolution or agreement that effectively binds all members of a class of shareholders though not agreed to by all those members; and
any other resolution or agreement to which Section 29 otherwise applies - for example, other statutory provisions may require that certain resolutions require to be filed.
Members' Resolutions | Page | 3
Next Steps We hope this assists you in understanding the process surrounding members' resolutions and to allow you to start considering the relevant issues. We are of course happy to discuss any aspect of this note further.
Iain Young Partner E: iain.young@morton-fraser.com T: 0131 247 3194
Austin Flynn Partner E: austin.flynn@morton-fraser.com T: 0131 247 1260
Members' Resolutions | Page | 4
Annex A- Ordinary Resolutions The table below lists all resolutions which are required by the Act to be passed as an ordinary resolution of the members of a company, along with reference to the relevant section of the Act.
Section
Ordinary Resolution
168(1)
Removal of directors.
188(2)
Approval of director's long term service contracts.
190(1) and (2)
Approval of substantial property transactions.
196(1)
Affirmation of substantial property transaction made in contravention of section 190 relating to a substantial property transaction.
197(1) and (2)
Approval of loans to directors.
198(2) and (3)
Approval of quasi-loans to directors.
200(2) and (3)
Approval of loans and quasi-loans to persons connected with directors.
201(2) and (3)
Approval of credit transactions.
203(1) and (2)
Approval of related arrangement.
214(1)
Affirmation of breach of sections relating to loans to directors.
217(1) and (2)
Approval of payment by company for loss of office.
218(1) and (2)
Approval of payment in connection with transfer of undertaking.
219(1)
Approval of payment in connection with share transfer.
226B
Approval of remuneration payment to a person who is, or has been a director of the company. This applies to quoted companies only.
Members' Resolutions | Page | 5
Section
Ordinary Resolution
226C
Approval of payment of loss of office to a person who is, or has been a director of the company. This applies to quoted companies only.
239(2)
Ratification of acts by directors.
247(4)
Power to make provision for employees on cessation or transfer of business if not authorised to be sanctioned by a board resolution.
319(1)
Election of chairman of a general meeting (unless already dealt with in articles of association).
328(1)
Election of a proxy as chairman of a general meeting (unless already dealt with in articles of association).
366(2)
Authorising political donations or expenditure.
439(1)
Approval of directors' remuneration report. This applies to quoted companies only.
439A(1)
Approval of directors’ remuneration policy. This applies to quoted companies only.
485(4)
Members' appointment of auditors of private company.
489(4)
Members' appointment of auditors of public company.
492(1)
Fixing of auditor's remuneration who is appointed by the members.
510(2)
Removing auditor from office.
536(2) and (3)
Authorisation of a liability limitation agreement.
536(5)
Withdrawal of authorisation of liability limitation agreement.
551(1)
Power of directors to allot shares (unless already authorised by articles of association). This is one of the ordinary resolutions which must be filed at Companies House.
551(4)
Renewal, revocation, variation of authority to allot shares.
Members' Resolutions | Page | 6
Section
Ordinary Resolution
601(1)
Approval of agreement for transfer of non-cash asset.
618(3)
Authorising sub-division or consolidation of shares.
620(2)
Authorising reconversion of stock into shares.
622(1)
Redenomination of share capital. This is one of the ordinary resolutions which must be filed at Companies House.
685(1)
Authorising the directors to determine the terms, conditions and manner of redemption of shares (unless already authorised by articles of association).
693A(1) and (4)
Authority for off-market purchase for the purposes of or pursuant to an employee share scheme. This is one of the ordinary resolutions which must be filed at Companies House.
694(2)
Authority for off-market share buyback contract.
694(4)
Verifying, revoking or renewing authority for off-market share buyback contract.
697(2) and (3)
Variation of contract for off-market share buyback.
700(2) and (3)
Release of company's rights under contract for off-market share buy back.
701(1) and (4)
Authorising company to make a market purchase of its own shares. This is one of the ordinary resolutions which must be filed at Companies House.
752(1)
Cancelling redeemed debentures.
912
Approval by transferor company of articles of new transferee company in the case of merger by formation of new company.
928
Approval by transferor company of articles of association of new transferee company in the case of division.
Sch 5, para 10(2)(a)
Agreement to sending or supplying documents or information to members by making them available on a website. This is one of the ordinary resolutions which must be filed at Companies House.
Members' Resolutions | Page | 7
Annex B- Special Resolutions The table below lists all resolutions which are required by the Act to be passed as a special resolution of the members of a company, along with reference to the relevant section of the Act.
Section
Special Resolution
21(1)
Amendment of articles of association.
77(1)
Change of name.
88(2)
Application of Welsh company to be registered in Wales.
88(3)
Application of Welsh company to be registered in England and Wales.
90(1)
Re-registration of private company as public.
97(1)
Re-registration of public company as private.
105(1)
Re-registration of unlimited company as limited.
307A(4) and (5)
Reduction of the notice required for a general meeting of a traded company from 21 days to 14 days.
569(1)
Disapplication of pre-emption rights: private company with only one class of shares.
570(1)
Disapplication of pre-emption rights: directors acting under general authorisation.
570(3)
Renewal of general authority to disapply pre-emption rights.
571(1)
Disapplication of pre-emption rights by special resolution.
571(3)
Renewal of special resolution to disapply pre-emption rights.
Members' Resolutions | Page | 8
573(2)
Disapplication of pre-emption rights: sale of treasury shares.
573(4)
Disapplication of pre-emption rights in relation to specified allotment.
Members' Resolutions | Page | 9
Annex C- Matters which may be effected by the holders of 75% of shares or of a particular class of shares The table below lists all matters which, in terms of the Act, may be effected by the holders of 75% of shares or of a class of shares, along with reference to the relevant section of the Act.
Section
Resolution
630(4)
Variation of class rights in companies with a share capital.
631(4)
Variation of class rights in companies without a share capital.
899(1)
Court sanction for compromise or arrangement agreed by members.
907(1)
Approval of scheme involving a merger.
922(1)
Approval of scheme involving a division.
969(1)
Power of offer or of shares to require a general meeting to be called.
Members' Resolutions | Page | 10
Consent Required Consent from the holders of at least 75% in nominal value of the issued shares of that class and given either:
by special resolution at a separate general meeting of the holders of the relevant class of shares; or
in writing.
Consent of holders representing 75% in value of each class of shares of each of the merging companies. Consent of holders of a majority in number, representing 75% in value, of each class of shares of each of the companies involved in the division, present and voting either in person or in proxy at the meeting. Consent of offer or holding not less than 75% in value of all the voting shares in the company.