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Law for Business

Knowhow - guidance - precedents

18 DEC 2012

Did you know ...

that it may be easier to pass a shareholders' resolution in a general meeting than by means of a written resolution?

As a result of relaxations introduced by the Companies Act 2006 to the written resolutions regime, shareholders in most private companies now regard a written resolution as the normal means of making decisions. True, the Act specifies that the procedure is not available for a resolution under section 168 to remove a director, or for a resolution under section 510 to remove an auditor, but such resolutions are relatively rare. On the whole, a written resolution is an attractive alternative to the traditional resolution passed at a general meeting.

If, however, there is any doubt as to whether there is sufficient support to pass the resolution in question, it may be better to call a general meeting than to try to take the decision by means of a written resolution. According to the Act, an ordinary resolution "means a resolution that is passed by a simple majority" (section 282), and a special resolution "means a resolution passed by a majority of not less than 75%" (section 283), and these definitions apply whether the resolution is to be passed as a written resolution or at a general meeting. Crucially, though, the Act goes on to say that:

  • in the case of a written resolution, these thresholds are met if the necessary percentage of the shareholders who are entitled to vote support the resolution; whilst
  • in the case of a resolution at a general meeting, the thresholds are met if the necessary percentage of the shareholders who cast a vote support the resolution.

In other words, the position (broadly) is that for the purposes of a written resolution the calculation as to whether a threshold has been met is based on the total number of shareholders, whereas for the purposes of a resolution proposed at a meeting it is based on the total number of shareholders who actually cast a vote.

Take a situation in which a shareholder with a 30% stake in an SME is happy to reap the rewards of the company's success, but does not have time to take an active interest in its affairs. If the other shareholders wish to alter the company's articles for any reason, they will, of course, need to do so by means of a special resolution. If they were to use a written resolution, they would not be able to reach the 75% threshold unless they could persuade the 30% shareholder to sign on the dotted line. By contrast, if they were to try to pass the resolution at a general meeting, they would be able to do so without him (assuming, of course, that he did not attend the meeting and vote against the resolution).

Whilst written resolutions are, quite rightly, the norm as far as most decisions of private companies are concerned, general meetings are not yet quite obsolete!

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