In Short
- In a company’s board, each director typically holds one vote, independent of their shareholding.
- Decisions are made through resolutions: ordinary resolutions require over 50% approval, special resolutions often need at least 75%, and unanimous resolutions necessitate all directors’ consent.
- A casting vote may be granted to the chairperson to break ties, but this should be clearly outlined in the shareholders’ agreement.
Tips for Businesses
Clearly define directors’ voting rights and decision-making processes in your shareholders’ agreement. Specify the types of resolutions required for various decisions and address the use of casting votes to prevent potential disputes. Regularly review and update the agreement to reflect any changes in the company’s structure or governance.
A company’s board consists of one or more directors. A company’s board of directors is responsible for overseeing management and making key decisions on behalf of the company. The board comprises executive directors who are involved in day-to-day operations, as well as non-executive directors who provide independent oversight. When there are at least two directors on the board, they must hold board meetings to vote on specific issues that require resolution. This article outlines directors’ voting rights in shareholders’ agreements, addressing decision thresholds and the role of casting votes.
How Many Votes Does Each Director Have?
It is standard practice for each director to have one vote. Do not link directors’ votes to shareholdings because directors do not necessarily own shares. The shareholders’ agreement should specify that shareholders, rather than directors, decide matters based on shareholdings.
What are the Types of Matters That Directors Can Vote On?
Companies categorise board decisions into different categories based on the level of criticality of the matter. The thresholds for each decision depend on the shareholders’ agreement or constitution of the company.
The benefit of having different categories is that it allows you to efficiently approve ordinary matters while requiring higher levels of board consensus for progressively more vital decisions.
Continue reading this article below the formHow Many Directors Need to Vote in Favour of a Matter for It to Pass?
Often, shareholders’ agreements differentiate between:
- matters that have to be passed by an ordinary resolution of the directors;
- matters that require a special resolution of the directors; and
- matters that require a unanimous resolution of the directors.
Generally, an ordinary resolution of the directors requires over 50% of the directors to vote in favour of the matter. This means that if there are two directors, both must vote in favour. If there are three directors, then at least two have to vote in favour; if there are four directors, then at least three have to vote in favour; and if there are five directors, then at least three have to vote in favour.
Usually, a special resolution requires at least 75% of the directors to vote in favour of a matter. However, you can adjust this percentage as a commercial decision, and it is not uncommon to do so depending on the number of directors. This means that if there are two directors, both must vote in favour; if there are three directors, all three must vote in favour; and if there are four directors, at least three must vote in favour. Moreover, if there are five directors, then at least four of them must vote in favour.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
What is the Board Meeting Process?
Important steps must be followed when holding a board meeting to ensure proper decision-making. The timing for calling a board meeting is a ‘reasonable’ amount of notice, but this is a replaceable rule under the Corporations Act. These replaceable rules are typically replaced by the company’s Constitution. The Constitution will then set out the timing required for notice to Directors.
A minimum number of directors (called a quorum) must be present, or the meeting cannot be held. The quorum is also a replaceable rule that requires two directors to be present when there are more than one. Again, the Constitution can supersede this rule and impose an alternative requirement.
What is a Casting Vote?
The directors will appoint a chairperson to chair each board meeting. The chairperson may be appointed for a single board meeting or a specified period.
The shareholders’ agreement and/or constitution should specify whether the chairperson has a casting vote. If the chairperson has a casting vote, then in the event of a board or shareholder deadlock (i.e., 50% of directors or shareholders are in favour of a matter and 50% are against it), the chairperson can use their casting vote to pass the matter, if they choose.
Key Takeaways
Voting provisions can be quite complex. As a shareholder, you should carefully consider these points before entering into a shareholders’ agreement. You need to ensure that no one party has complete control of the board, particularly when it comes to critical business matters that could seriously affect you. In addition, you need to think about the future and how the board might change (for example, is it likely that additional directors will be appointed?) and how this could affect you (for example, will this mean that you no longer have control of the board?).
If you would like any additional information about voting provisions or shareholders’ agreements, or you require a shareholders’ agreement to be drafted or reviewed, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A company’s board of directors is responsible for overseeing management and making key decisions on behalf of shareholders. The board can be made up of one or more directors. It can consist of executive directors involved in day-to-day operations as well as non-executive directors providing independent oversight.
A matter is passed when a vote has 50% of the directors voting in favour of the matter. A special resolution usually requires at least 75% of the directors to vote in favour of a matter. A unanimous resolution requires all directors to vote in favour of a matter.
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