A shareholder is a person who invests in a company. This means they give a company money in return for part ownership of the company. A shareholder’s investment hinges on the belief that the company will grow, and so to will the return on the investment. Shareholders do not make decisions on all company matters. For example, the day-to-day management of a company remains in the hands of the board of directors. However, shareholders may decide critical business decisions such as matters affecting the ownership of winding up of a company. Shareholders make decisions known as shareholder resolutions. This article sets out the types of shareholder resolutions that exist.
What Kind of Influence Do Shareholders Have Over the Company?
Depending on the class of shares the shareholder holds, they may have voting rights concerning the management and direction of the company’s growth. A majority shareholder is often the founder of a company and owns more than 51% of the company’s shares. By holding the majority share of the company, a majority shareholder has significant influence over the direction of the company.
On the other hand, a minority shareholder owns less than 50% of a company’s shares. They might be a friend, family member, investor or even employees of your business. A minority shareholder has less power than a majority shareholder when it comes to making company decisions.
What Are The Types of Shareholder Resolutions?
Company shareholders do not decide on all company matters. If you have a company, you should be familiar with the Corporations Act 2001, as well as the company’s constitution and shareholders agreement. These documents will dictate who in the company has the power to decide or vote on particular matters. In other cases, it is more obvious. For example, if you are the only shareholder and the sole director of a small proprietary company, then you can pass a resolution simply by signing a document that sets out the resolution.
Once you know who has the power to decide a particular matter, you then need to know whether to use:
- an ordinary;
- a special; or
- a unanimous resolution.
Generally speaking, each shareholder has one vote for each share they own in the company. However, in some companies, there are different classes of shareholders. Some of these classes of shares do not carry voting rights.
1. Ordinary Resolution
A shareholder, or group of shareholders, holding at least 50% of a company’s shares need to pass an ordinary resolution. For example, if a company has five shareholders, each holding 20% of the shares in the company, to pass an ordinary resolution, at least three shareholders need to agree on the matter. Alternatively, if one shareholder is holding 60% of the shares, then the shareholder can pass a matter on their own without consulting the other shareholders.
2. Special Resolution
A special resolution requires the agreement of a shareholder, or group of shareholders, holding a percentage of shares in a company. This percentage must be included in the shareholders agreement and may be negotiated by the shareholders. A company may require that the percentage is 75%, for example. Here, if five shareholders each own 20% of the company’s shares, then four of the five need to vote in favour of the resolution for it to pass. Alternatively, if one shareholder owns 75% of the shares in the company, that shareholder can pass a special resolution on their own.
3. Unanimous Shareholder Resolution
To pass a unanimous shareholder resolution, a company needs all of its shareholders to vote in favour of the matter. As this type of resolution requires 100% of shareholders to agree, its use is limited. Of course, the more shareholders needed to pass a resolution, the harder it is to pass.
Shareholders do not make all of company’s decision. The everyday management of the company is in the hands of the board of directors. However, shareholders are sometimes expected to vote on more significant decisions concerning the direction of the company. There are different types of shareholder resolutions or decisions that can be made. These are:
- special; or
- unanimous resolutions.
You should understand the types of resolutions available and the requirements for each. This will ensure that company matters are passed. If you have any questions, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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