Ordinary vs. Special Resolutions: Your Guide to Compliant Decision-Making

Companies make decisions every day, from routine approvals to strategic overhauls. These decisions are formalized through resolutions—votes by shareholders or directors that are recorded and often filed with regulators. The two main types are ordinary resolutions and special resolutions, each with specific rules and applications. Knowing the difference is crucial to ensuring your decisions are legally sound.

A secretarial services provider can streamline the process, handling drafting and compliance. But whether you outsource or manage internally, understanding resolutions is key to effective governance. Here’s a comprehensive guide to navigating them.

Defining Resolutions

A resolution is a formal decision documented after a vote by shareholders or directors. It’s a record of agreement on issues, from operational approvals to major structural changes. Resolutions are stored in the company’s records and, in some cases, filed with regulatory bodies to ensure compliance.

Shareholder resolutions come in two forms:

• Ordinary resolutions: For routine business matters.
• Special resolutions: For significant changes to the company’s structure or strategy.

Their differences lie in the approval threshold and the scope of decisions they cover.

Ordinary Resolutions: Managing Everyday Decisions

Ordinary resolutions handle standard decisions that keep the company operational. They require a simple majority—more than 50% of votes cast—to pass, reflecting their lower-risk nature.

Common Uses:

• Approving yearly financial reports
• Electing or reappointing directors
• Appointing auditors for the year
• Declaring dividends for shareholders
• Approving director remuneration

These decisions are essential for business continuity but don’t fundamentally alter the company, so the approval bar is lower.

Example:
In a meeting with 130 votes cast, a resolution to appoint a new auditor needs at least 66 votes in favor. If 70 shareholders agree, the resolution passes easily.

Special Resolutions: Handling Transformative Decisions

Special resolutions are used for decisions that could significantly impact the company’s identity or operations. They require at least 75% of votes cast to pass, ensuring strong consensus for high-stakes moves.

Common Uses:

• Renaming the company
• Amending the company’s constitution or Articles of Association
• Approving mergers, acquisitions, or restructurings
• Issuing or reducing share capital
• Voluntarily winding up the company

These decisions can affect shareholder rights or the company’s legal framework, so they require broader support.

Example:
If 130 shareholders vote on a resolution to reduce share capital, at least 98 must agree. If only 90 vote in favor, the resolution fails, despite having majority support.

Why Accuracy Is Essential

Using the wrong resolution type can void a decision. For instance, attempting to rename the company with an ordinary resolution (requiring only 50% approval) when it needs 75% could invalidate the action. Acting on an invalid resolution—such as rebranding—may lead to legal issues or require redoing the vote.

A secretarial services provider can prevent these mistakes by ensuring the correct resolution is used, documents are clear, and filings with regulators like ASIC (Australia) or ACRA (Singapore) are handled properly.

How Resolutions Are Passed

Resolutions can be approved in two ways:

1. At meetings: During an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM) called for a specific purpose.
2. By written resolution: Circulated to all eligible shareholders for approval without a meeting.

Both methods are valid, but written resolutions must reach every shareholder entitled to vote. Resolutions must be clearly worded, and special resolutions often require filing with regulators.

A secretarial services provider ensures compliance with these requirements, from drafting to filing.

The Corporate Secretary’s Role

The corporate secretary—or an outsourced secretarial services provider—is critical to the resolution process. They:

• Draft clear, legally compliant resolutions
• Advise on whether a decision requires an ordinary or special resolution
• Prepare meeting notices and agendas
• File resolutions with regulatory authorities
• Maintain detailed records in the company’s minute books

Their expertise ensures decisions are legally enforceable and well-documented.

Avoiding Common Errors

Companies, especially those without compliance teams, often face challenges:

• Wrong resolution type: Using an ordinary resolution for a special resolution matter.
• Unclear wording: Resolutions that are vague, leading to disputes.
• Missed deadlines: Failing to file resolutions with regulators on time.
• Lack of quorum: Voting without enough shareholders present.

A secretarial services provider can help avoid these pitfalls, ensuring smooth and compliant decision-making.

In Summary

Resolutions are the foundation of company governance. Ordinary resolutions support operational needs, while special resolutions address transformative changes. Understanding their differences ensures compliance and avoids costly errors.

For seamless resolution management, a corporate secretarial services provider can handle the details, keeping your decisions valid and your business on track.