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When running a company, you will need to make choices about the business’s operations and management. Your members will likely need to pass resolutions to decide certain matters – particularly if required under the Corporations Act 2001. Shareholders must comply with procedural requirements for the decision to be effective. Below, we set out the process involved in passing a shareholders resolution and the requirements for an ordinary, special and unanimous resolution.
What Is the Process?
A company’s shareholders agreement should contain the procedure for holding a general meeting. Unlike directors who meet regularly, there is no need for shareholders to meet frequently. Any director may call a meeting of shareholders by giving reasonable notice of the meeting to the company’s relevant shareholders. There are different classes of shares, and each class has different rights and restrictions attached to them. Directors may call a meeting of a particular class of shareholders only.
It is standard for the director calling a meeting to set out the agenda so the relevant shareholders can prepare for the meeting. A shareholders agreement may allow a shareholders meeting to be held in person or using technology (i.e. telephone, video or audiovisual communication such as Skype).
For a valid shareholders meeting, a minimum number of shareholders will need to be present (quorum). The directors of a company may elect an individual to chair meetings of shareholders. Additionally, the chair of a shareholders meeting may or may not have a casting vote, depending on the terms of each shareholders agreement. The shareholder’s agreement will also set out the procedural matters required for an effective and valid board meeting.
Furthermore, there are generally a few requirements to satisfy to pass a shareholders resolution:
- the resolution must pass at a meeting which satisfies any specific quorum;
- you must convene the meeting according to the shareholders agreement; and
- you must record the meeting for the company’s records within one month of the meeting.
You must also record the meeting’s minutes and have the meeting’s chair sign these minutes. It is also essential to determine what type of resolution you are looking to pass. You must satisfy different requirements to pass special resolutions.
How Is a Members Resolution Decided?
Each shareholder typically has one vote for each share they hold. There are three different types of shareholders resolutions:
1. Ordinary Resolution
Some of the decisions that require an ordinary resolution include the election of directors, commercial decisions, and acceptance of reports at the general meeting.
An ordinary resolution will require shareholders with over 50% of the company’s shares to vote in favour of the particular matter. For example, there are two shareholders – one holding 60% of the shares and the other holding 40%. Provided the member holding 60% of the shares votes in favour of the resolution, it will pass.
2. Special Resolution
A special resolution is needed when you make certain changes in the company. The Corporations Act outlines certain situations requiring a special resolution. Decisions such as winding up a company or changing the company name need to be made by passing a special resolution.
A special resolution generally requires 75% of shareholders vote in favour of the resolution. An exception is if your shareholders agreement states otherwise. For example, suppose there are two shareholders, one holding 60% of the shares and the other holding 40%. In that case, both shareholders will need to agree in favour of the matter before passing a special resolution.
A proprietary company can pass a special resolution without holding a general meeting; however, 100% of votes are needed to pass this resolution.
3. Unanimous Resolution
A unanimous resolution is when all shareholders present at a meeting agree (i.e. 100% of the shareholders are in favour of passing a particular matter).
Once you pass a shareholders resolution, you may need to notify the Australian Securities and Investments Commission. Depending on the decision made through the passing of a resolution, you may need to lodge specific forms with ASIC to notify them of these changes.
Continue reading this article below the formKey Takeaways
More commonly, shareholders vote on matters through an ordinary resolution. Your shareholders agreement should set out what issues require a special resolution or unanimous resolution. If you have any questions about shareholders’ meetings or your company’s corporate governance, contact LegalVision’s commercial lawyers on 1300 544 755.
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