Companies need to make certain decisions in a prescribed manner to be effective. It’s important then that you are familiar with the terms of your company constitution, shareholders agreement and the relevant provisions of the Corporations Act 2001 to know which matters are decided in what manner. Your documents may refer to the board of directors or shareholders making decisions by passing one of three different types of resolutions. Below, we look at three shareholder resolutions, namely:
- Ordinary Resolutions;
- Special Resolutions; and
- Unanimous Resolutions.
Shareholders typically have one vote for each share they hold (depending on the conditions of the class of shares).
An ordinary resolution is one that a shareholder or relevant shareholders holding at least 50% of shares pass. Shareholder resolutions are typically decided by an ordinary resolution to enable a smooth decision-making process.
For example, a company with five shareholders each holding 20% of the shares in the company needs three shareholders to agree to pass an ordinary resolution. If one shareholder was holding 60% of the shares, then this shareholder on its own (depending of course on its class of share) could pass a matter.
A special resolution requires shareholders with at least 75% of the shares in a company to agree. Shareholders can negotiate the percentage which is usually set out in the shareholders agreement.
For example, if five shareholders each held 20% of the shares, to pass a special resolution (using 75% as the pass percentage), you would require four of the five to agree. If you have one shareholder holding 75% of the shares in a company, then that shareholder alone can pass a special shareholders resolution even if the shareholders holding the remaining 25% do not agree. Special shareholders resolutions are harder to pass than ordinary shareholders resolutions as, depending on the company’s share structuring, they can require more shareholders to be in agreement.
A unanimous shareholders resolution is a decision of all of the shareholders or members – that is, it requires 100% of the shareholders to agree. The use of a unanimous resolution is limited and less common.
Although the board of directors are responsible for the day-to-day affairs and management of a company, there are some matters which directly affect the shareholders (including issuing new shares).
Where a company has more than one shareholder, it is strongly advised that the shareholders adopt a shareholders agreement which will govern the relationship between members including, among other things, what matters the directors or shareholders must decide. Ordinary resolutions are more common, however, in limited circumstances, shareholders may use a special resolution. Unanimous resolutions are even less common simply because they are difficult to pass.
If you have any questions or need assistance drafting a shareholders agreement, get in touch with our team of commercial lawyers on 1300 544 755.