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If you are operating your business through a company, it is essential to understand how a company lawfully makes decisions. One such decision your company can make is an ordinary resolution. Asking for and passing an ordinary resolution requires you to follow a specific process, such as having all shareholders present. Following the correct procedure ensures that you are conducting your business operations effectively and fairly. This article will explain:

  • differences between a board resolution and shareholder resolution;
  • what an ordinary resolution is;
  • how to propose an ordinary meeting; and 
  • the requirements to pass an ordinary resolution.

Board Resolution vs Shareholder Resolution

A board resolution is a formal decision of the directors of a company. Generally, you can pass board resolutions in one of two ways, when: 

  • the majority of directors present at a meeting vote in favour of a matter; or 
  • all directors sign a statement that they are in favour of the resolution.

Be sure to check the governing documents for your company in case they detail a different process. 

Alternatively, a shareholder resolution is a formal decision of the shareholders of a company. You can pass resolutions at shareholder meetings, called general meetings, or by circular resolution in writing. Types of resolutions include ordinary resolutions, special resolutions and unanimous resolutions. Your company constitution or shareholders agreement should outline the percentage threshold for each resolution to pass.

The general rule is that your company board makes decisions. Exceptions exist where your company’s governing documents require that shareholders decide. Likewise, the Corporations Act may state that shareholders are to decide on certain matters. Where the Corporations Act requires a matter to be decided by ‘resolution’ or ‘ordinary resolution,’ this means an ordinary resolution of the shareholders. 

This article will focus on passing an ordinary resolution of shareholders. 

What Is an Ordinary Resolution?

Ordinary resolutions are common resolutions used for routine decisions within a business. Shareholders, rather than company directors, decide on these matters. Occasionally, you may hear a reference to an ordinary resolution of the directors. Still, without the inclusion of the words ‘of the directors’, an ordinary resolution is a resolution of the shareholders.

A company may pass a resolution without holding a general meeting. To do so, all members permitted to vote on the resolution must sign a document containing a statement that they are in favour of the resolution. Each member of a joint membership must sign separate copies of a document. Ensure the wording of the resolution is identical in each copy. The resolution passes when the last member signs. 

Additionally, if your company intends to pass a resolution, you must hold a meeting to give members information or a document relating to the resolution. Likewise, you must distribute the document that you wish members to sign.

Your company must also lodge a copy of a notice of meeting to consider the resolution with ASIC. The lodgement should feature the document you wish members to sign. The passage of the resolution is valid when it satisfies any requirement in the Corporations Act or a company’s constitution.

Steps to Proposing an Ordinary Resolution

At a general meeting, members can vote for an ordinary resolution to pass or through a written circular resolution. We discuss the latter method below. 

If you plan to pass an ordinary resolution at a general meeting, your company’s directors must include the text of the proposed resolution in a notice of meeting. Next, you must send this notice to shareholders. There are certain notice rules for holding a shareholder meeting which you must follow. Generally, shareholders require at least 21 days notice of a meeting unless your company constitution consents to shorter notice.

Additionally, it is common for company directors to set out the agenda before holding a general meeting. The purpose is so shareholders understand the topics set for discussion and can decide if they want to attend and prepare for the meeting. To ensure that a shareholders’ meeting is valid, a minimum number of shareholders must be present (called a quorum). You can find the quorum for meetings of your shareholders in your company’s governing documents. If no quorum is stated, two shareholders must attend a general meeting for the meeting to proceed.

How to Pass an Ordinary Resolution at a Meeting

Passing an ordinary resolution requires a ‘simple majority’ of members. This means that the votes ‘for’ must equal more than 50% of votes validly cast by each shareholder present and entitled to vote. 

The general rule is that shareholders vote on a show of hands at a meeting. Each shareholder present at the meeting has one vote regardless of the number of shares they hold. If your constitution demands a poll, shareholders present at the meeting have one vote for each voting share they hold. 

Depending on the company constitution, shareholders agreement or any other binding decision-making documentation applicable, you may be able to hold shareholder meetings virtually, using audio-visual telecommunication technology such as Zoom.

Further, good governance requires that ordinary resolutions that pass in general meetings must be in writing in the company’s records within one month of the shareholder meeting. There should be someone recording the minutes of your general meeting. This person should also set out the text of the resolution that passes. Next, the chair of the meeting or director should sign these minutes to confirm that the resolution has in fact passed.

If you do not meet procedural requirements, such as notice and quorum requirements, you risk having your ordinary resolution considered invalid. 

Passing an Ordinary Resolution by Circular

You may find it easier to pass an ordinary resolution by a written circular resolution. In that case, you need to have a written text of the resolution and circulate this document to shareholders who are entitled to vote. Shareholders ‘vote’ in favour of the resolution by signing the circular. Likewise, the resolution passes when all shareholders sign to confirm they are in favour of the resolution.

Moreover, shareholders can sign different copies of the circular, provided that the text of the resolution included in the circular is the same. The date that the resolution passes is the date on which the last shareholder signs the circular. 

Importantly, there are two types of ordinary resolutions that a written resolution cannot pass. These are the removal of:

  • a director before the end of their intended term; and 
  • an auditor.

Key Takeaways 

An ordinary resolution is a simple majority decision of the shareholders. The starting point for business decisions is that they are made by the board. However, where the approval of the shareholders is required, ordinary resolutions are the most common way that shareholders make decisions. To ensure that your ordinary resolution passes properly, it is essential to follow all procedural requirements before, during and after board and shareholder meetings. For more information on how to ask for an ordinary resolution or reviewing your company constitution, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is the difference between a board resolution and a shareholder resolution?

A board resolution is a formal decision made by the directors of a company. A shareholder resolution is a formal decision of the shareholders of a company. Be sure to check the governing documents for your company, including the company constitution and shareholders agreement, for the correct process in passing a resolution.

What is an ordinary resolution?

Ordinary resolutions describe routine decisions within a business. Shareholders, rather than company directors, decide on these matters. Passing an ordinary resolution requires a ‘simple majority’ of members.

How can I ask for an ordinary resolution?

Your company constitution will detail any specific processes to ask for an ordinary resolution. Generally, your company’s directors must include the text of the proposed resolution in a notice of meeting. Next, you must send this notice to shareholders. Typically, shareholders require at least 21 days notice of a meeting unless your company constitution consents to shorter notice.

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