Resolution

In the structured world of UK corporate governance, a resolution is the formal mechanism through which a company's board of directors or its shareholders make and record a binding decision. It is far more than a simple agreement; it is the final, documented outcome of a formal vote on a specific proposal, known as a motion. Once a motion is passed according to the company's rules and relevant legislation, it becomes a resolution, carrying legal weight and providing a clear mandate for action.

For any director or company secretary, a thorough understanding of resolutions is not just beneficial—it is essential for ensuring compliance, maintaining good governance, and providing a clear, auditable trail of a company's most critical decisions. This glossary entry will provide an in-depth exploration of resolutions within the context of the United Kingdom's legal framework, primarily governed by the Companies Act 2006.

Why Are Resolutions Necessary?

Resolutions serve several fundamental purposes that underpin the entire framework of corporate governance. Without this formal process, decision-making could become ambiguous, unenforceable, and legally perilous.

  • Legal Validity: Many significant corporate actions are legally void unless approved by the correct type of resolution. For example, altering the company's Articles of Association requires the authority of a duly passed special resolution.

  • Clarity and Certainty: A resolution provides an unambiguous record of a decision. It clearly states what was decided, who decided it, and when. This eliminates confusion and provides a single source of truth for directors, shareholders, and external bodies like auditors or regulators.

  • Authority to Act: A resolution grants the company's directors or specific officers the explicit authority to take action. Whether it's entering into a major contract, appointing a new auditor, or issuing new shares, the resolution acts as the formal instruction to proceed.

  • Historical Record: Resolutions, meticulously recorded in the board minutes or company's statutory books, form a critical part of the company's history. This record is vital during audits, due diligence for mergers and acquisitions, or legal disputes.

  • Shareholder Protection: The requirement for certain decisions to be passed by shareholder resolutions ensures that the owners of the company have a say in fundamental changes, protecting their interests from unilateral actions by the board.

The Primary Types of Resolutions in the UK

The Companies Act 2006 defines the main types of resolutions. The distinction between them primarily lies in the level of support required to pass them, which in turn reflects the significance of the decision being made.

1. Ordinary Resolution

An ordinary resolution is the most common type and represents the default mechanism for decision-making unless the law or the company's Articles of Association specify otherwise.

  • Voting Threshold: An ordinary resolution is passed by a simple majority. This means it requires more than 50% of the votes cast by those entitled to vote, whether in person, by proxy, or (in the case of a written resolution) by eligible members.

  • Common Uses for Ordinary Resolutions:

    • Appointing a new director to the board.

    • Removing a director (though special notice is also required).

    • Appointing or re-appointing the company's auditors.

    • Approving the final dividend for a financial year.

    • Authorising directors to allot shares (if permitted by the Articles).

    • Approving the directors' remuneration report for quoted companies.

Example in Practice: At an Annual General Meeting (AGM), a motion is put forward to re-appoint Smith & Jones LLP as the company's auditor for the next financial year. Of the shareholders present and voting, 65% vote in favour and 35% vote against. As the 'for' vote exceeds 50%, the motion is carried and an ordinary resolution is passed. This is then recorded in the meeting's minutes.

2. Special Resolution

A special resolution is required for more significant, constitutionally important decisions that fundamentally affect the company's structure or nature. The higher voting threshold reflects the gravity of these matters.

  • Voting Threshold: A special resolution requires a majority of not less than 75% of the votes cast by those entitled to vote. This supermajority ensures that such fundamental changes have broad support among shareholders.

  • Legal Requirement: The notice for a meeting where a special resolution is to be proposed must explicitly state that it is a special resolution.

  • Common Uses for Special Resolutions:

    • Changing the company's name.

    • Altering the company's Articles of Association.

    • Dis-applying pre-emption rights, allowing the company to issue shares to new investors without first offering them to existing shareholders.

    • Reducing the company's share capital (subject to court approval).

    • Approving a "buy-back" of the company's own shares out of capital.

    • Voluntarily winding up the company (liquidation).

  • Filing Requirement: Most special resolutions must be filed with Companies House within 15 days of being passed. This makes the decision part of the public record, ensuring transparency. Failure to file can result in fines for the company and its officers.

3. Written Resolution (For Private Companies)

The written resolution procedure, governed by Chapter 2 of Part 13 of the Companies Act 2006, is a powerful and efficient tool available exclusively to private companies. It allows shareholders to pass resolutions without the need to convene a physical or virtual general meeting. This can save significant time and administrative cost.

  • How it Works: Instead of calling a meeting, the proposed resolution is circulated (electronically or in hard copy) to all eligible members (shareholders). Each member then signifies their agreement.

  • Voting Threshold: The same voting thresholds apply. An ordinary written resolution requires agreement from members representing a simple majority of the total voting rights, and a special written resolution requires agreement from members representing at least 75% of the total voting rights.

  • Circulation and Deadline: Once circulated, members usually have a 28-day period (or a different period if specified in the Articles) to cast their vote. The resolution passes as soon as the required majority is reached. If the threshold isn't met by the deadline, the resolution lapses.

  • Limitations: A written resolution cannot be used for two specific purposes:

    1. To remove a director before the expiration of their term of office.

    2. To remove an auditor before the expiration of their term of office.

    These actions must be taken at a general meeting to allow the director or auditor in question the right to speak and make representations.

The use of a secure platform like BoardCloud can significantly streamline the written resolution process, allowing for secure digital circulation, electronic voting, and automatic collation of results, while ensuring a clear audit trail.

The Lifecycle of a Resolution: From Motion to Record

The process of passing a resolution follows a clear, structured path, ensuring fairness and proper procedure.

Step 1: The Motion is Proposed A resolution begins life as a motion—a formal proposal put to a meeting. This motion must be clearly worded and included in the meeting's Agenda, which is circulated to attendees in advance. For special resolutions, the notice of the meeting must specify the exact wording and the intention to propose it as such.

Step 2: Discussion and Debate The chairperson of the meeting presents the motion for consideration. Directors or shareholders are given the opportunity to discuss, debate, and ask questions about the proposal. Amendments to the motion may be proposed at this stage, subject to the company's procedural rules.

Step 3: The Vote is Called Once the discussion is concluded, the chairperson will call for a vote. Voting in general meetings typically occurs in one of two ways:

  • Show of Hands: The default method, where each person present has one vote.

  • Poll Vote: A more formal method where voting power is proportional to the number of shares held. A poll vote can be demanded by the chairperson or a qualifying number of members.

For board meetings, decisions are usually made by a majority vote of the directors present, with the chairperson often having a casting vote in the event of a tie, if the Articles permit.

Step 4: The Result is Declared The votes are counted by the Company Secretary or a designated scrutineer. The chairperson then formally declares whether the motion has been carried or defeated. The moment it is declared carried, it officially becomes a resolution.

Step 5: Documentation and Filing This is a critical final step. The resolution must be recorded precisely in the minutes of the meeting. The minutes should state the exact wording of the resolution and the fact that it was passed.

Statutory Record Keeping: Under the Companies Act 2006, a company must keep records of all resolutions passed by its members for at least 10 years. These records must be available for inspection by members.

As mentioned, if the resolution is a special resolution (or certain other specific ordinary resolutions), a copy must be sent to Companies House within 15 days.

The Role of Technology in Managing Resolutions

In the modern governance landscape, managing the resolution process efficiently and securely is paramount. This is where board management software like BoardCloud provides immense value:

  • Drafting and Collaboration: Securely draft and review the wording of resolutions within the platform before they are added to an agenda.

  • Digital Voting: Facilitate secure voting during virtual or hybrid meetings, or use the platform for electronic circulation and voting on written resolutions, ensuring accuracy and speed.

  • Automated Minute-Taking: Integrate resolutions directly into the meeting minutes, reducing the risk of manual error and ensuring the wording is captured precisely as passed.

  • Centralised Resolution Register: Create a single, searchable digital repository of all past resolutions. This makes it incredibly easy to find and verify previous decisions during audits or legal reviews, rather than searching through years of physical documents.

  • Compliance Tracking: Set automated reminders for filing deadlines with Companies House, helping the Company Secretary ensure all statutory obligations are met.

By digitising the lifecycle of a resolution, companies can enhance efficiency, strengthen compliance, and improve the overall quality of their corporate governance.

Frequently Asked Questions (FAQ)

1. What is the difference between a motion and a resolution?

A motion is a proposal for a decision that is put forward for discussion and a vote at a meeting. It is the subject of debate. A resolution is the outcome—it is the formal, documented decision that results from a motion being successfully passed after a vote. In simple terms, a motion is what is being discussed, and a resolution is what has been agreed upon.

2. Can a resolution be changed or revoked after it has been passed?

Yes, but doing so requires passing another resolution. A resolution is a legally binding decision, so it cannot simply be ignored or informally cancelled. To undo a previous resolution, the board or shareholders must follow the same formal process, proposing a new motion to revoke or amend the earlier one. This new motion would then need to be passed by the required majority (ordinary or special, as appropriate) to become a new, superseding resolution.

3. What are the legal consequences of not filing a special resolution with Companies House?

Failing to file a required resolution with Companies House within the statutory 15-day period is an offence under the Companies Act 2006. The company and every officer of the company who is in default (which can include directors and the company secretary) can be subject to a fine. Furthermore, it can cause significant practical problems, as third parties (like banks or potential investors) who check the public record at Companies House will not have an accurate picture of the company's constitution or capital structure, which could delay or jeopardise transactions.