Shareholder and member are interchangeably used terms. Members are the owners of the company and shareholders invest in the company by giving money in exchange for part ownership, hoping to generate a return on their investment. Depending on the class of shares the shareholder or member holds, they may have the right to vote on matters concerning management and direction of the company’s growth.
You may also have heard of a “majority shareholder” and “minority shareholder”. A majority shareholder is typically the founder of the company and owns more than 51% of the shares. As such, the majority shareholder can exercise greater influence over the direction of the company and growth strategies. Conversely, a minority shareholder owns less than 50% of the shares of a company and can be friends, family, investors or even employees of your business.
What are the Different Types of Resolutions?
Shareholders will need to refer to the company’s constitution and shareholders agreement as well the Corporations Act 2001 (Cth) to determine who in the company has the power to determine particular matters. Small proprietary companies with only one shareholder who is also the sole director could pass a resolution by simply signing a document setting out the resolution.
After deciding who decides the matter, you will then need to know if this is done by an ordinary, special or unanimous resolution. Generally speaking, each shareholder has the right to one vote for each share they own in the company. In some companies, there are different classes of shareholders and some don’t carry voting rights.
What is an Ordinary Resolution?
Members holding at least 50% of the shares in the company can pass an ordinary resolution. An ordinary resolution decides most shareholders resolutions. For example, if a company has five shareholders who each hold 20% of shares, at least three shareholders must first agree to pass an ordinary resolution. If one shareholder owned 60% of the shares, the shareholder could pass a matter on its own without consulting the other members.
What is a Special Resolution?
A special resolution requires the agreement of a shareholder or group of shareholders holding 75% of the shares in a company. Members can negotiate this percentage and set this out in the shareholders agreement. If five shareholders each hold 20% of the shares, to pass a special resolution (using 75% as the pass percentage), they will require four of the five to agree. If one shareholder holds 75% of the company’s shares, that shareholder alone can pass a special resolution even if the remaining members don’t agree. Special resolutions are typically harder to pass than ordinary resolutions because they require more shareholders to agree.
What is a Unanimous Resolution?
A unanimous resolution is a decision of all of the shareholders or members of the company. Any such decision will require 100% of the shareholders to be in agreement. The use of a unanimous resolution is limited and uncommon simply because it is difficult to have 100% of shareholders agree on a decision.
The day-to-day management of a company should be in the hands of the board of directors and as such, members should use shareholder resolutions (whether ordinary, special or unanimous) for critical business matters (e.g. matter affecting ownership or winding up a company). Also, you should take the time to determine the level of agreement needed for each type of decision. Requiring unanimous decisions to decide all matters could slow progress due to the difficulty in making any decisions.
If you would like help drafting or reviewing your company’s shareholders agreement, or have any questions about what types of decision the board usually determines, get in touch with our commercial lawyers on 1300 544 755.