Under the Companies Act 2006 various company decisions must be made via resolutions. Certain of these decisions, generally those that are most important or sensitive, must under company law be passed by a special resolution.
In this article we look at what a special resolution is, the circumstances in which it will be required and how to pass a special resolution. We also provide some special resolution template wording that you can adapt or use as inspiration.
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A special resolution is a resolution of the company’s shareholders which requires at least 75% of the votes cast by shareholders in favour of it in order to pass. Where no special resolution is required, an ordinary resolution may be passed by shareholders with a simple majority – more than 50% – of the votes cast.
The need for a special resolution may help good decision-making, ensuring important changes are better considered
The special resolution regime helps to protect minority shareholders against important decisions being taken without proper consideration and, to the extent possible, consensus. In areas covered by a special resolution, a shareholder or group of shareholders together holding 25% of the shares can effectively oppose a resolution. The need for a special resolution may help good decision-making, ensuring important changes are better considered and an effort made to gain wider support than a simple majority. Of course, the special resolution regime can also work to a company’s disadvantage – when a required transaction is blocked by an intransigent minority.
The main ways in which special resolutions can be passed are:
- On a show of hands or poll at a general meeting of shareholders, potentially alongside other company business
- Via a written shareholders’ resolution.
We’ll look in more detail at how to pass a special resolution in another article.
It’s important to use the right type of resolution. If you use an ordinary resolution where a special resolution is required, or don’t follow the correct procedure, the resolution could be invalid.
What decisions require a special resolution to be passed?
The Companies Act 2006 defines a number of transactions which require a special resolution to be passed, including the following. We’ve provided a few special resolution example wordings that you can amend:
THAT the name of the Company be changed to XYZ Limited.
THAT the initialled document attached hereto be adopted as the articles of association of the company in replacement and to the exclusion of the existing articles.
3. A reduction in the company’s share capital
4. Disapplication of shareholder pre-emption rights
5. Certain cases where the company purchases its own shares
6. Changing the company’s status by registration, for example:
- From an unlimited company to a limited company (or vice versa)
- A private company to a public company (or vice versa)
7. Winding up of the company voluntarily (or by the court)
THAT the company be wound up voluntarily, and that Julian Warwick of Heldon Smith & Partners be appointed as liquidator for the purposes of winding-up.
The Companies Act also permits other decisions to be passed by special resolution even if they might ordinarily be passed instead by an ordinary resolution. In addition, the company’s Articles of Association can also specify other transactions where special resolutions are required – such a provision may be included in the company’s Articles where the shareholders want an extra level of protection against certain decisions being taken rashly.
Having decided that you need to pass a special resolution, in our next article we’ll look in more detail at the different means by which a company can pass one.
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