Summary
- A circulating resolution is a written document that allows a company to pass formal decisions without holding a meeting, with the resolution taking effect once the last required signatory signs the document, and is governed by sections 248A, 248B, 249A, and 249B of the Corporations Act 2001 (Cth) as well as the company’s constitution and shareholders deed.
- For companies with more than one director, all directors entitled to vote must generally sign the resolution unless the company’s constitution specifies that a majority or special majority (usually 75% or more) is sufficient, whilst sole director companies can pass a resolution simply by recording and signing it.
- Before preparing a circulating resolution, companies must review their constitution and shareholders deed to confirm who is required to sign, as requirements vary between companies and the constitution may contain specific provisions that modify the default position under the Corporations Act.
- This article is a guide to circulating resolutions for company directors and shareholders in Australia, explaining what a circulating resolution is, when a company can use one, and how to prepare and pass one correctly under the Corporations Act 2001 (Cth).
- LegalVision is a commercial law firm that specialises in advising clients on corporate governance and company law.
Tips for Businesses
Review your company’s constitution and shareholders deed before preparing any circulating resolution to confirm the required signatories and whether a unanimous or majority signature threshold applies. Ensure the resolution document clearly sets out the background, proposed resolution, and any authorisations required, particularly for significant transactions such as share issuances. Confirm whether electronic signatures are permitted under your constitution and applicable legislation before circulating the document for signing.
A circulating resolution allows a company to make formal decisions without holding a meeting, which can be a practical and efficient alternative when bringing directors or shareholders together is not feasible. Understanding when your company can use one and how to pass it correctly is essential for good corporate governance. This article will discuss circulating resolutions, whether your company can pass one and how you can pass one.
What Is a Circulating Resolution?
A circulating resolution is a written document setting out the resolutions (i.e. decisions or actions) your company needs to pass or approve. To pass a resolution, the directors or shareholders who need to pass the resolution need to sign it. This way, your company can pass resolutions without holding a meeting. A circulating resolution is passed once the last person who needs to sign the resolution signs it.
Can My Company Pass a Circulating Resolution?
To determine if the company’s directors or members can pass a circulating resolution, you should consult two main mechanisms. These include:
- the company’s constitution;
- shareholders deed; and
- the Corporations Act.
Section 248A of the Corporation Act (‘Act’) applies to circulating resolutions of companies with more than one director. Under this section, directors can pass a resolution if every director entitled to vote signs a document that states the proposed resolution and confirms their support.
Section 248B of the Corporations Act applies if your company has only one director. It states that the sole director can pass a resolution simply by recording it and then signing that record.
Similarly, under sections 249A and 249B of the Act, the members of the company can pass a resolution without a general meeting being held if:
- the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document; and
- the resolution is passed when the last member signs.
Some shareholder agreements have a clause outlining the company’s ability to pass circular resolutions. However, it is more common for the company constitution to contain this clause. Company constitutions will often state that companies with more than one shareholder can pass resolutions:
- using a circulating resolution; or
- through a written instrument signed by all the shareholders entitled to vote on the resolution.
Company constitutions will also contain a similarly worded clause for directors.
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How to Prepare and Pass a Circulating Resolution
To pass a circulating resolution, your company will need to prepare a document that sets out the resolutions that your company is seeking to pass. A circulating resolution will typically contain the reasons for the resolution and the resolutions your company is seeking to pass.
Everyone entitled to vote on the resolution will then need to sign the document. Your company’s constitution might allow a director’s circulating resolution to pass without requiring every director to sign it. Instead, it may specify that a majority (50% or more) or a special majority (usually 75% or more) of directors signing in favour is enough to approve the resolution.
However, most of the time, all the directors and shareholders will need to sign a circulating resolution. As a result, you should consider the requirements of your company’s constitution to determine who has to sign.
Are There Decisions That Cannot Be Made by Circulating Resolution?
Not every company decision can be made through a circulating resolution. Some decisions require a formal meeting, regardless of what your constitution says. Under the Corporations Act 2001 (Cth), certain resolutions must be passed at a properly convened meeting. These include:
- removing a director from office;
- removing an auditor; and
- passing a resolution that requires a special majority under the Act, such as changing the company’s constitution.
These decisions require proper notice to be given to all members and the opportunity for debate before a vote is taken. A circulating resolution does not allow for this process.
If your company tries to pass one of these decisions using a circulating resolution, the resolution may be invalid. This could expose your company to legal risk, particularly if the decision is later challenged by a director or shareholder.
Before using a circulating resolution for any significant decision, check whether the Corporations Act or your constitution requires a formal meeting instead.
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Key Takeaways
A circulating resolution allows directors or shareholders to pass a resolution in writing rather than having to hold a meeting. The general rule is that companies may pass a circulating resolution if all the parties that are entitled to vote on the resolution sign that they are in favour of it. Shareholders with the right to vote can always pass a circulating resolution, whereas whether directors can pass a circulating resolution will depend on your company’s constitution and shareholders’ agreement.
If you have any questions about passing circular resolutions, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
Do we need a unanimous agreement to pass a circulating resolution?
That depends on your company’s constitution. Some require every director’s signature, while others only need a majority.
Where should companies look to determine their circulating resolution requirements?
Companies should consult their constitution, shareholders deed, and the Corporations Act. The constitution commonly specifies whether a unanimous or majority signature is required, and may contain specific provisions about how circulating resolutions can be passed.
Can we use electronic signatures?
Often, yes. Check your constitution or any relevant laws to make sure e-signatures are allowed.
When is a circulating resolution considered officially passed?
A circulating resolution is passed at the moment the last person required to sign the resolution signs it. For sole director companies, the director simply records and signs the resolution without requiring others to sign.
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