An ordinary resolution is a formal shareholder or director decision requiring a simple majority vote to pass routine business matters like director appointments, dividend declarations, and financial statement approvals in a company.
An ordinary resolution is the most common type of formal decision-making mechanism used by companies, requiring approval from more than 50% of votes cast at a shareholders' meeting or directors' meeting. It covers routine governance matters that keep your business operating smoothly without needing the higher thresholds required for more significant changes. When you pass an ordinary resolution, you're following proper corporate procedure for standard business decisions.
These resolutions are fundamental to corporate governance, ensuring that decisions affecting the company's day-to-day operations have proper shareholder or director approval. The term "ordinary" distinguishes these from "special resolutions," which require a higher voting threshold of 75% for major structural changes like amending the company's constitution or winding up the business.
For startup founders and small business owners, understanding ordinary resolutions is essential because you'll encounter them regularly in annual general meetings, when appointing new directors, or when making changes to your share option scheme. Proper use of ordinary resolutions helps maintain good corporate governance and protects against future disputes by ensuring decisions are properly documented and approved.
Your company will need an ordinary resolution for a wide range of routine corporate decisions that form the backbone of regular business operations. These include approving the annual financial statements, declaring dividends to shareholders, appointing or removing directors, and appointing auditors. These are decisions that happen regularly rather than extraordinary events.
You'll also use ordinary resolutions when implementing employee incentive schemes like granting share options or approving directors' service contracts. If you're raising equity financing through a new share issue that doesn't exceed the authorised share capital stated in your company's constitution, you'll typically need an ordinary resolution to approve the share allotment.
Other common uses include approving the director's report, granting authority to the directors to allot shares up to a certain limit, and approving transactions with directors that may create conflicts of interest. Essentially, any decision that affects the company's operation but doesn't fundamentally alter its structure will likely require an ordinary resolution.
The main difference between an ordinary resolution and a special resolution lies in the voting threshold required for approval. An ordinary resolution needs a simple majority (more than 50%) of votes cast, while a special resolution requires a supermajority of at least 75% of votes cast. This higher threshold reflects the more significant nature of decisions requiring special resolutions.
Special resolutions are reserved for major corporate changes that fundamentally affect the company's structure or existence. These include altering your company's memorandum or articles of association, changing the company name, reducing share capital, or voluntarily winding up the company. By requiring a higher voting threshold, special resolutions ensure that substantial changes have broad shareholder support.
The procedural requirements also differ. While both types of resolutions require proper notice to shareholders, special resolutions often require specific wording in the notice stating the resolution's nature as a special resolution. This gives shareholders clearer warning about the significance of the decision they're being asked to approve.
To pass an ordinary resolution, you need more than 50% of the votes cast by shareholders present and voting at a general meeting. This simple majority requirement means that if 100 votes are cast, the resolution passes with 51 votes in favour. Shareholders who are present but abstain from voting are not counted in this calculation, which can sometimes affect the outcome.
Voting rights typically follow the "one share, one vote" principle, meaning shareholders with more shares have proportionally greater voting power. However, some companies may have different voting structures with multiple share classes having different voting rights. It's essential to check your company's articles of association to understand the specific voting rights attached to each share class.
When counting votes for an ordinary resolution, only votes actually cast are considered. Shares that are not voted (abstentions) are effectively neutral—they don't count as votes for or against. This means that with high shareholder turnout, passing an ordinary resolution may require a smaller percentage of the total share capital than you might initially expect.
Once an ordinary resolution is passed, it becomes binding on the company and all its shareholders. The resolution should be properly recorded in the minutes of the meeting, which serve as the official corporate record of decisions made. These minutes must be kept with your company's statutory books for at least ten years.
For certain resolutions, you may need to file a copy with the Companies Registration Office. For example, resolutions appointing or removing directors typically require filing a Form B10 within 14 days. Resolutions affecting share capital or amending the company's constitution also generally require filing with the company registry to update the public record.
The company's directors are responsible for implementing the decisions made through ordinary resolutions. If a resolution approves the annual accounts, the directors must ensure they are properly prepared and filed. If a resolution appoints a new director, that person can begin acting in that capacity immediately, subject to any specific conditions stated in the resolution.
Yes, ordinary resolutions can be passed by written resolution, which allows shareholders to approve decisions without holding a physical meeting. This is particularly useful for private companies with shareholders who may be geographically dispersed or for decisions that need to be made quickly between scheduled meetings.
For a written resolution to be effective, it must be circulated to all eligible shareholders, and you must receive written consent from shareholders representing more than 50% of the total voting rights. Unlike a meeting, there's no requirement for shareholders to be physically present together, making written resolutions more convenient for routine matters.
However, written resolutions cannot be used for all decisions. For example, resolutions to remove a director or auditor before their term expires typically require an actual meeting. Always check your company's articles of association and the Companies Act 2014 to determine whether a particular decision can be approved by written resolution.
Failing to follow proper procedures for ordinary resolutions can render the decisions invalid, potentially causing significant legal and operational problems. If shareholders challenge a resolution in court because proper notice wasn't given or voting procedures weren't followed, the court may declare the resolution void, reversing any actions taken based on it.
For example, if you appoint a director without the proper ordinary resolution, that person may not have valid authority to act on behalf of the company. Contracts they sign might be unenforceable, and decisions they make could be challenged. Similarly, if you declare dividends without proper shareholder approval through an ordinary resolution, the dividend payments might need to be returned.
Beyond legal consequences, improper governance can damage investor confidence. During due diligence for a funding round or acquisition, potential investors will review your company's minute books. Missing or improperly documented ordinary resolutions can raise red flags about your company's governance standards and potentially affect valuation or deal terms.
