The day to day management of a company should be in the hands of the board of directors and not the shareholders. Shareholders resolutions are typically used for critical business decisions, for example, matters affecting the ownership or winding up of a company. Below, we set out what is an ordinary, special and unanimous shareholders resolution as well as circumstances in which they are passed.
What is a Shareholder?
A shareholder is also known as a member of a company, and the two words can be used interchangeably. Members are the company’s “owners” – shareholders invest in companies by giving money in return for part ownership in the hope that as the company grows, so will their return on investment. Depending on the class of shares the shareholder or member holds in the company, the shareholder may have voting rights concerning the management and direction of the company’s growth.
You may also have heard of the terms “majority shareholder” and “minority shareholder”. A majority shareholder is often the founder of a company. A majority shareholder owns more than 51% of the shares of a company. By holding the majority share of the company, majority shareholders have a significant influence over the direction of the company and decisions made.
On the other hand, a minority shareholder is a member who owns less than 50% of the shares of a company. Minority shareholders could be friends, family, investors or even employees of your business. Minority shareholders have less power than the majority shareholders in deciding the direction of a company.
What Are The Different Types of Resolutions?
The shareholders of a company do not make the decisions on all company matters. You will need to look at the company’s constitution, shareholders agreement (if there is one) and be familiar with the Corporations Act 2001 (Cth) to determine who in the company (that is, either the directors or the shareholders) has the power to decide or vote on a particular matter. Some small proprietary companies have only one shareholder who is also the sole director of the company. In this case, the sole director can pass a resolution by simply signing a document that sets out the resolution.
Once you know who should decide the matter, then you will need to know whether to use an ordinary, special or unanimous resolution.
Usually, each shareholder has one vote for each share they own in the company. In some companies, there are different classes of shareholders. Some classes of shares do not carry voting rights.
1. Ordinary Resolution
A shareholder or group of shareholders holding at least 50% of the shares in a company pass an ordinary resolution. By way of illustration, if a company has five shareholders, each holding 20% of the shares in the company, to pass an ordinary shareholders resolution you would need at least three shareholders to agree on the matter. If one shareholder was holding 60% of the shares, then this shareholder could pass a matter on its own without the consultation of any other shareholders.
2. Special Resolution
A special resolution requires the agreement of a shareholder or group of shareholders holding at least, for example, 75% of the shares in a company. Shareholders can typically negotiate this percentage, and it is set out in the shareholders agreement. Again, if five shareholders each own 20% of the shares, then four of the five will need to vote in favour of the resolution for it to pass. If one shareholder owns 75% of the shares in a company, that shareholder alone can pass a special resolution.
3. Unanimous Shareholders Resolution
A unanimous shareholders resolution is a one that all of the company’s shareholders must vote in favour of to pass. As it requires 100% of the members to agree, it’s use is limited and uncommon. Evidently, the more shareholders needed to pass a resolution, the harder it is to pass.
It is important to keep in mind that you are in business to do business. The day to day management of a company should be in the hands of the board of directors and not the shareholders. You should take the time to determine the type of resolution that is needed for each type of decision. Also, have practicality in mind – if all matters are decided through a unanimous resolution, it could prevent decisions from being passed and impair the operations of the business.
If you would like help drafting or reviewing a shareholders agreement or you have questions about what type of resolution you should use, get in touch with our business law team on 1300 544 755.