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What Is A Company Resolution?

What Is A Company Resolution?

Just selected a new board? Need to learn how to pass a resolution? Read on to learn more about the importance of resolutions in corporate governance.

17th September 2019
Reading Time: 3 minutes

Laying Down The Law: The Importance Of A Company Resolution

 So you have just selected a killer board to support your company on its journey to corporate success. However, how does your new board create and enforce its decisions? Company resolutions are the lifeblood of corporate decision making. Board members use resolutions as a formal way to note choices in a company. Under the Corporations Act 2001 (Cth), decisions made by the board require a company resolution. This article explores some of the important features of a company resolution.

Making a Company Resolution

Before a company can decide, for example, to approve a budget, they need to seek the board’s approval. A company’s constitution and shareholders agreement should dictate who has the authority to create a resolution. Resolutions usually occur at a board or shareholders meeting. Generally, board meetings occur at least once a year. Any director can call the meeting. The company sectary or a director calling the meeting will organise which issues need to be voted on. Resolutions for private companies require a minimum of 21 days advance notice. The company secretary will record any resolution made by the board. 

Criteria for a company resolution

Under the Corporations Act 2001 (Cth), for a resolution to pass, it must meet the following criteria:

  • The resolution is passed at a meeting which is properly convened and satisfied any quorum (minimum number of members are present) requirements;
  • companies need to record a resolution from a meeting in 21 days and;
  • the minutes of the meeting where the resolution was passed must be signed by the chair of the meeting or the chair of the following meeting.

It is important to note that if a resolution fails to meet these criteria, it may be considered invalid.

Voting On A Company Resolution

Also, shareholders rights play an essential role in determining the allocation of voting power when making a resolution. The standard voting procedure for company resolutions is that each board members receives one vote per share. A shareholder with greater voting power will have more control because of their ownership rights. Where a company does not use share capital, each member will still receive one vote. A resolution usually requires a minimum of 50% to pass. Therefore, seek legal advice to clarify the balance of power within your organisation.

The Types Company Resolutions

An Ordinary Company resolution

Moreover, The Corporations Act 2001 (Cth) does not define an ordinary resolution. A simple majority (i.e., usually, more than 50% of votes cast in favour) to pass. For example, if there are ten board members, six need to vote in favour of a resolution for it to pass. Therefore, it is essential to consider your board to vote ratio. Ordinary resolutions can include:

  • Election/re-election of directors;
  • appointment of an auditor;
  • acceptance of reports at the general meeting and
  • strategic or commercial decisions.

Special Resolutions and Unaminious resolutions

Furthermore, special resolutions require different criteria under the Corporations Act 2001 (Cth). Special resolutions include changing a company’s name, winding up the company, or changing the company’s type. Some of the crucial features of a special resolution can include:

  • The notices to members must include the intention to vote on the special resolution and details of its contents;
  • There is a 75% pass requirement if the vote occurs at a meeting;
  • If there is no meeting, 100% of votes are required to pass a special resolution;
  • For specific special resolutions, Form 202 must be lodged with ASIC and
  • In some instances, a company constitution may dictate that certain resolutions require 100% to pass.

Start Taking care of Bussiness!

In conclusion, resolutions that a company makes will determine its success. Resolutions are the foundation of corporate governance, and understanding their purpose is critical to an active board. So whether you’re deciding on a company mascot or to go public, resolutions are the lifeblood of your business.

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Joshua Cutrone

Josh is a Legal intern at Lawpath. He is a Commerce/Law student at Macquarie University. He has an interest in cyberlaw and blockchain technology.