When running a company, you will need to make choices about the operations and management of the business. Your members will likely need to pass resolutions to decide certain matters – particularly if the Corporations Act 2001 (Cth) (the Act) specifically mentions the issue. 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?
The company’s shareholders agreement contains the procedure for holding a general meeting. Unlike directors who meet once a year (in practice, however, they meet more often), there is not usually a need for shareholders to meet on a regular basis. Any director may call a meeting of shareholders by giving reasonable notice of the meeting to the relevant shareholders of the company. 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 for 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. 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.
How is a Members Resolution Decided?
Each shareholder normally has one vote for each share they hold. There are three different types of shareholders resolutions:
1. Ordinary Resolution
An ordinary resolution will require shareholders with over 50% of the shares in the company 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 requires 75% of the shareholders vote in favour of the resolution (unless stated otherwise in your shareholders agreement). For example, if there are two shareholders as in the above example, then to pass a special resolution you will need both shareholders to agree in favour of the matter before passing a special 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).
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 about your company’s corporate governance including the chairperson’s responsibilities and the decision-making process, get in touch with our commercial lawyers on 1300 544 755.