Every company faces decisions that define its direction. Some are routine, like approving yearly accounts. Others are pivotal, like merging with another firm or rebranding. These choices are formalized through resolutions—votes by shareholders or directors that become part of the company’s official record. The two main types are ordinary resolutions and special resolutions, each with distinct rules and purposes.
Missteps in the resolution process can lead to invalid decisions or legal headaches. A secretarial services provider can guide you through, ensuring compliance. But whether you’re outsourcing or managing internally, understanding the basics is essential. Here’s what you need to know.
Understanding Resolutions
A resolution is a documented decision, typically made by shareholders, that formalizes a company’s stance on an issue. It’s recorded in the company’s books and often filed with regulators. Resolutions come in two flavors:
- Ordinary resolutions: For routine, low-risk decisions.
- Special resolutions: For significant changes affecting the company’s structure or strategy.
The key difference? The percentage of votes needed to pass and the types of decisions they address.
Ordinary Resolutions: The Basics of Business
Ordinary resolutions are used for standard company matters. They require a simple majority—over 50% of votes cast—to pass. These decisions keep the company running but don’t fundamentally alter its framework.
Typical Uses:
- Approving financial reports
- Electing or re-electing directors
- Appointing external auditors
- Declaring shareholder dividends
- Approving compensation for directors
These are the day-to-day decisions that maintain operations, so the approval threshold is relatively low.
Example:
At a meeting with 150 votes cast, a resolution to re-elect a director needs at least 76 votes to pass. If 80 shareholders vote in favor, the resolution succeeds.
Special Resolutions: High-Stakes Decisions
Special resolutions are for decisions with major implications. They require at least 75% of votes cast to pass, ensuring broad agreement for changes that could reshape the company.
Typical Uses:
- Renaming the company
- Amending the company’s constitution or Articles of Association
- Approving mergers or significant restructurings
- Issuing or reducing share capital
- Dissolving the company voluntarily
These decisions can affect shareholder value, legal obligations, or the company’s existence, so they demand stronger support.
Example:
Suppose 150 shareholders vote on a resolution to amend the company’s constitution. At least 113 must vote in favor. If only 100 agree, the resolution fails, even with a majority.
Why It Matters
Choosing the wrong resolution type can void a decision. For example, attempting to reduce share capital with an ordinary resolution (requiring only 50% approval) when it needs 75% could render the action invalid. Acting on such a decision—like issuing new shares—could lead to regulatory penalties or the need to restart the process.
A secretarial services provider ensures these mistakes don’t happen. They’ll confirm the correct resolution type, draft precise documents, and file them with authorities like the SEC (US) or SSM (Malaysia).
Passing Resolutions
Resolutions can be passed:
- In meetings: During an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM).
- Via written resolutions: Sent to all shareholders for approval without a meeting.
Both approaches are valid, but written resolutions must reach every eligible shareholder. Resolutions need clear wording and, in many cases, must be filed with regulators—especially special resolutions.
A secretarial services provider handles these logistics, ensuring timely filings and proper documentation.
The Corporate Secretary’s Role
A corporate secretary (or an outsourced secretarial services provider) is critical to the process. They:
- Write resolutions that meet legal standards
- Determine whether an ordinary or special resolution is needed
- Organize meeting notices and agendas
- Submit resolutions to regulatory bodies
- Keep detailed records in the company’s minute books
Their work ensures your decisions are compliant and defensible.
Common Errors to Avoid
Without proper guidance, companies—especially startups or small businesses—can stumble:
- Incorrect resolution type: Using an ordinary resolution for a decision requiring a special one.
- Ambiguous wording: Resolutions that lack clarity, leading to disputes.
- Missed filings: Failing to submit resolutions to regulators on time.
- No quorum: Voting without enough shareholders present.
A secretarial services provider can catch these issues early, saving time and avoiding legal risks.
In Summary
| Type | Approval Needed | Purpose |
|---|---|---|
| Ordinary | >50% of votes cast | Routine tasks like audits, director elections |
| Special | ≥75% of votes cast | Major moves like rebranding, restructuring |
Resolutions are how companies formalize decisions. Ordinary resolutions handle operational needs; special resolutions address transformative changes. Knowing which to use keeps your company compliant and efficient.
For those seeking support, a corporate secretarial services can manage the process, ensuring your resolutions are valid and your business stays on track.
