Reading time: 5 minutes

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.

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.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Nathalie King
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards