A company resolution is a formal written statement that documents decisions made by: 

  • the board of directors; or 
  • shareholders of the company. 

Resolutions are short legal documents that briefly set out any decisions made by these stakeholders, along with the context and reasons for those decisions. Although you would generally pass resolutions in the context of a meeting, a meeting is not always required. It is important that you understand the process of passing a company resolution so that you can comply with your business administration requirements. This article explains the different types of company resolutions and the process for passing them.

Board Resolutions

A board resolution is simply a resolution passed by the board of directors. As the board of directors is responsible for day-to-day operations of the company, these resolutions are used to make most company decisions. 

Examples of decisions that are typically made by board resolutions include:

  • approving the company to enter into a contract with a third party;
  • authorising the company to borrow or lend money;
  • issuing dividends to the company’s shareholders; or
  • approving capital expenditure.

Ordinary, Special and Unanimous Resolutions

Most board resolutions only need to be passed by a simple majority of the company directors, which is called an ordinary resolution. Decisions which are more consequential for the company may need to be passed by a larger majority of the directors (usually over 75%), in which case they are known as special resolutions. If a decision requires approval from all of the company directors, it is called a unanimous resolution

Your company’s constitution and shareholders agreement will set out what types of decisions you need to make via a special or unanimous resolution. It will also specify what the percentage threshold for a special resolution is. 

Common examples of decisions for which companies may require a higher threshold of approval from the board include:

  • merging with or acquiring another business;
  • issuing shares in the company;
  • adopting a business plan and/or budget for the company; or
  • restructuring the company.

For some types of decisions, it may be appropriate to include a financial threshold to determine whether an ordinary, special or unanimous resolution is required.

For example, if the company proposes to lend up to $100,000 to another entity an ordinary resolution may be sufficient. However, if it proposes to lend more than that amount, a special or unanimous resolution may be more appropriate.

You should think carefully before requiring decisions to be made by unanimous resolution. This is because any single director will be able to prevent that decision from being made if they object.

Shareholder Resolutions

Shareholder resolutions (or member resolutions) are resolutions passed by the shareholders of a company. Normally a shareholder has one vote for every share they own in the company. This ensures that their voting power is proportional to their ownership stake.

For example, the vote of a single shareholder with a 20% stake in a company will outweigh the votes of ten shareholders with a collective 19% stake in a company. 

However, it is possible to amend the voting rights of particular shareholders by issuing them with different classes of shares, that each have different voting rights.

Shareholders are not normally actively involved in the day-to-day decision making of a company, so shareholder resolutions are used less often than board resolutions. They are also typically used for more fundamental decisions about the company. 

Your company’s constitution or shareholders agreement can set out the types of decisions requiring a shareholder resolution. However, federal legislation requires you to make certain decisions by a special resolution of the shareholders, including:

  • changing the company name;
  • winding up the company;
  • changing the company type (e.g. taking a private company public);
  • adopting, repealing or amending a company constitution; and
  • changing the rights attached to shares (e.g. converting ordinary shares into preference shares).

How Are Resolutions Normally Passed?

A resolution is normally passed at a meeting of the board of directors or shareholders. In order to pass a resolution at a meeting: 

  • you must call the meeting properly; and 
  • a minimum number of directors/shareholders must be present (i.e. you must meet quorum). 

Your company’s constitution or shareholders agreement will set out the: 

  • correct process for calling a meeting; and 
  • quorum required.

If a special resolution of the shareholders is required, the company must usually give the shareholders at least 21 days’ notice.

If the resolution is passed by the required majority, you should put it into the company records within a month of the date of the meeting. You should also include the minutes from the meeting at which the resolution was passed, which must be signed by the chair of the meeting. It is important to follow these requirements, as failure to do so may result in the invalidation of your resolution.

Circular Resolutions

An alternative to calling a meeting is passing a circular resolution. A circular resolution is a written resolution that is distributed to and signed by the different directors or shareholders, without the need for calling a meeting. 

Circular resolutions are particularly helpful when: 

  • a large number of signatures are required; 
  • the company’s directors or shareholders are in different places; or 
  • calling a meeting would be impractical for any other reason.

By default, companies can pass circular board and shareholder resolutions. However, you can amend your company’s constitution or shareholders agreement to set out whether circular resolutions are permitted. You can also limit the types of decisions that can be made and define the process for passing them.

Notifying ASIC

Depending on the decisions made, it may be necessary to notify ASIC of the company’s resolution by lodging a: 

  • Form 205 Notification of Resolution; or 
  • Form 2205 Notification of Resolutions Regarding Shares

Some examples of the decisions that require ASIC Forms to be submitted include:

  • changing the company name;
  • conducting a share split;
  • providing financial assistance to someone to acquire shares in the company; and
  • changing the company type (e.g. a company limited by shares to a company limited by guarantee).

Key Takeaways

When making important decisions within your company, it is important that you follow the process of passing a formal company resolution. Most decisions concerning your day-to-day operations can be passed by a board resolution. This will require ordinary, special or unanimous support, depending on the significance of the resolution. Any decisions that substantially affect the company will likely require a shareholders resolution, which is passed by those shareholders with voting rights. Finally, you can use circular resolutions to collect the votes of directors or shareholders when it is not possible to call a meeting. It is vital that you understand when to use each of these different processes, so that your resolution remains binding. If you would like advice about how to pass a company resolution, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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