When is a Company or Board Resolution Required?

A private company is an entity owned by shareholders and operated by directors. Shareholders often have the right to appoint directors, so it is common that the same people are shareholders, directors and employees. Because of the overlap, there is often some confusion about what decisions shareholders and directors make. Further, you may need company and board resolutions for specific matters. In this article, we define company resolutions and board resolutions, outlining when to use each.

What is a Company Resolution?

A company resolution is passed by shareholders. Typically, shareholders are not part of day-to-day operations of the company. Rather, shareholders are involved in matters about the company shares. To an extent, shareholders are often concerned with what will affect the value of their shares in the company and the number of dividends the company will pay them.

The law, however, acknowledges that shareholders should be protected. It requires that some decisions are approved by special resolution, meaning that 75% of shareholders vote in favour. Examples of decisions that require approval by special resolution are:

• changing the name of the company;
• adopting, repealing or modifying the constitution;
• changing the type of company. For example, from a private to a public company;
• approving a selective buy-back of shares by the company;
• selectively reducing share capital;
• transferring the company’s registration to another state or territory;
• winding up the company; and
• converting ordinary shares to preferences shares and vice versa.

A company may choose to list critical business matters in its constitution or shareholders agreement. These are decisions that require a special or ordinary shareholder resolution. Critical business matters are important to shareholders, especially where they do not have the right to appoint a director or it is part of negotiations of the shareholders agreement. Critical business matters often include:

• the appointment of directors;
• capital expenditures;
• dividends;
• issuing new shares in the company;
• borrowing funds and the appointment; and
• remuneration of key employees.

What is a Board Resolution?

On the other hand, a board resolution is passed by the directors. The board of directors make key decisions for the company, except for those reserved for shareholders.

Directors have significant power that can create risk for shareholders, particularly if directors make reckless decisions or act in their personal interest rather than that of the company.

To protect shareholders, directors are subject to duties under the law. Consequently, they may be personally liable if they breach these duties. Although directors make significant decisions for the company, the Chief Executive Officer or key employees make most day-to-day decisions. The board only makes decisions about material matters. For example, making decisions about:

• capital expenditure;
• raising capital;
• taking out a loan; or
• entering into material contracts.

Ultimately, there is no statutory requirement for directors to hold a board meeting. However, most company constitutions will require that directors meet at least once a year.

Requirements to Pass Resolutions

Quorum

Quorum is the minimum number of directors or shareholders that need to be present when holding valid shareholder or director meetings. A quorum must be present when passing resolutions. Each company’s quorum requirements are set out in the company constitution and the shareholders agreement, or the replaceable rules. The replaceable rules require a quorum of:

• two shareholders for a shareholders’ meeting; and
• two directors for a directors’ meeting.

Chairperson and Casting Vote

To ensure that meetings run effectively, the board or shareholders may elect one of the directors or shareholders as chairperson for the meeting. Additionally, the company can choose to give the chairperson a casting vote to avoid a situation where there are equal votes for and against a particular resolution.

Types of Resolutions

There are three types of resolutions:

1. ordinary resolutions which require that a majority of directors or shareholders present at the meeting approve of the resolution;
2. special resolutions which need a higher percentage, often 75%, of those present at the meeting, or another percentage as set out in the constitution and a shareholders agreement; and
3. unanimous resolutions, which require 100% of those present at the meeting.

Bookkeeping

Finally, the chairperson of the members meeting must sign the board minutes as a record of resolutions passed. The company will then enter the resolutions into the company’s books within a month of the meeting.

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Key Takeaways

A company can significantly improve its governance and efficiency by understanding:

• the roles of shareholders and directors;
• the difference between company resolutions and board resolutions; and
• above all, how to pass a valid resolution.

Accordingly, a good first step would be for directors to familiarise themselves with the company’s constitution or shareholders agreement. If you have any questions, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

What Is a Company?

A private company is an entity owned by shareholders and operated by directors.

What Is a Company Resolution?

A company resolution is passed by shareholders. Typically, shareholders are not part of day-to-day operations of the company. Rather, shareholders are involved in matters about the company shares.

What Is a Board Resolution?

A board resolution is passed by directors. The board of directors make key decisions for the company, except for those reserved for shareholders.

What Is a Quorum?

Quorum is the minimum number of directors or shareholders that need to be present when holding valid shareholder or director meetings.