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The formal process a company takes to approve or make certain decisions is to pass a resolution. When the board or shareholders hold a meeting, they will pass the relevant resolutions at the meeting. Sometimes, it is not practical for company directors or shareholders to hold a formal meeting, but the company may need to make a decision or approve certain actions. However, a company may be able to pass a circulating resolution to approve resolutions without a meeting. 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) that 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?

Your company directors can pass a circulating resolution if they sign a document that contains a statement that they are in favour of the resolution set out in the document. The same applies to your company’s shareholders. All the directors and shareholders who sign the circulating resolution must have the right to vote.

This applies to both companies with a single director and companies with multiple directors.

This means that your company’s shareholders can always pass a circulating resolution. However, the rules relating to circulating resolutions of directors is a replaceable rule. This means that whether or not your company’s directors can pass a circulating resolution will depend on your company’s constituent documents. These are your company’s constitution and shareholders agreement. As a result, your company can pass a director’s circulating resolution unless your constituent documents say otherwise. If you do not have a constitution or a shareholders agreement, your shareholders and directors will be able to pass a circulating resolution.

Most companies have a constitution and a shareholders agreement. Some shareholders 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.

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.

For example, if your company is intending to issue shares to an investor as part of a capital raise, the circulating resolution of the directors will usually include the following:

  • the background information of the raise. This will usually include how much money the company is intending to raise, who the shares will be issued to and how much the investor is paying per share;
  • the proposed resolution to be passed (in this case, approving the issue of shares to that investor); and
  • authorisation for the company to enter into the relevant share issuance documents with that investor. For example, a share subscription agreement.

Everyone entitled to vote on the resolution will then need to sign the document. In the case of a director’s circulating resolution, instead of requiring all directors to sign, your company’s constitution may allow a circulating resolution to pass if a majority (50% or more) or special majority (usually, 75% or more) of directors sign the resolution stating that they are in favour of it. 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.

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, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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