Ordinary Resolution – What is it?

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During the life of a company many important decisions must be passed via resolutions under the Companies Act 2006. An ordinary resolution is the most common of these as rarer and fewer decisions require a special resolution.

Most companies pass at least one of these each year. This is done by achieving just a ‘simple majority’ – more than 50% of votes cast – of members voting ‘for’ it (members are the shareholders in a company limited by shares).

In this article we will cover:

  • What an ordinary resolution is
  • The company decisions requiring ordinary resolutions
  • How an ordinary resolution is passed
  • The ordinary resolutions that require special notice
  • Any additional requirements for ‘listed’ companies

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What is an ordinary resolution?

An ordinary resolution is the method by which members approve routine company decisions, traditionally in general meetings. Below is an example of an ordinary resolution for removing and replacing an auditor.

 

OrdinaryResolution

What decisions require an ordinary resolution?

Most company decisions are made by resolution and this will be an ordinary resolution unless the Companies Act 2006 or the company’s articles of association require it to be a different type of resolution. Here are some typical examples of decisions passed via an ordinary resolution:

  • Approval of the annual accounts
  • Approval of a final or interim dividend
  • Re-appointment and appointment of a director
  • Increasing the authorised share capital
  • Reappointment of auditors
  • Removing a director

Certain (more important) company decisions are required to be made by a special resolution which require at least 75% of the votes cast to be passed.

A company’s articles of association may require that some specific decisions that may normally require an ordinary resolution instead require a special resolution, therefore it is always prudent to check a company’s articles when planning to conduct such business at a general meeting.

How is an ordinary resolution passed?

An ordinary resolution is passed by what is referred to as a ‘simple majority’ of members, meaning that the votes ‘for’ must equate to more than 50% of the total votes cast by each member’s voting rights.

The resolution is either:

  1. Voted upon at a general meeting, such as the AGM (following the usual notification rules for holding such a meeting and its contents); or
  2. Passed by a written resolution.

Note that there are two ordinary resolutions that cannot be passed by a written resolution:

  • Removal of a director before the end of their planned term
  • Removal of an auditor before the end of their planned term

As you will see in most general meetings (at least for small, non-public companies) an actual calculation is not required. A simple show of hands often provides enough to show which way the simple majority lies.

Example

As part of a board meeting, the board of directors decided to propose the appointment of a new director. It was decided that this would be proposed as an ordinary resolution at the upcoming annual general meeting (AGM).

At the meeting, voting commenced on the proposed ordinary resolution to appoint the new director. The company has 2,400 shares with equal voting rights, which are split between 8 shareholders in varying proportions. Only 4 shareholders were present at the meeting and voting. Two other shareholders cast votes by proxy. The result of the vote was as follows:

As the votes ‘for’ the ordinary resolution were greater than 50%, the resolution passed. This was recorded in the minutes of the meeting.

If the 2 shareholders that didn’t take part had voted against the appointment, the votes ‘for’ would have totalled 50% and hence the resolution would not have passed as this is not greater than 50%.

Which resolutions must be filed with Companies House?

While all special resolutions must be filed with the registrar of companies, comparatively few ordinary resolutions need to be filed with them. Only the following ordinary resolutions are required:

  • Authorising directors to allot shares
  • Authorising a purchase of the company’s own shares
  • Re-denomination of shares to another currency
  • Agreeing that a company may send or supply documents or information to members by making them available on a website

Only when one of these ordinary resolutions is passed must a copy of the resolution be sent to the Companies House within 15 days. Companies House cannot currently accept these electronically.

Which ordinary resolutions require ‘special notice’?

Certain company decisions that can be passed via an ordinary resolution require special notice to be provided to all shareholders at least 28 days prior to the ordinary resolution being voted upon. In fact, the Companies Act 2006 states that the company must “…where practicable, give its members notice of any such resolution in the same manner and at the same time as it gives notice of the meeting”.

The decisions that require such special notices are:

  • Removing a director before the director’s period of office is due to end
  • Appointing an auditor who is not the retiring auditor
  • Removing an auditor before their retirement from office date
  • Filling a casual vacancy in the office of auditor
  • Reappointing the retiring auditor who was appointed by the directors to fill a casual vacancy

Are there additional requirements for ‘listed’ companies?

Companies that have their shares listed for trading on a market must provide two copies of all resolutions passed to the FCA’s ‘primary market functions’ department immediately (previously referred to as the UKLA), who will make them available for public inspection.

Where performing company secretarial duties for a ‘listed’ PLC we’d recommend that you seek advice from an expert in such companies.


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