What Is A Special Resolution?
Special resolutions are resolutions that must meet special requirements in order to be passed as laid down by company law. They require two-thirds of the shareholders’ voting rights, including proxies present at the meeting, to favor the Resolution for it to be adopted.
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Source: Special Resolution (wallstreetmojo.com)
An official resolution is a mechanism for a business to record decisions reached in a member meeting. It describes the choices and decisions a corporation’s board of directors makes, whether a majority approves them or not. They serve as proof of the conduct of a company in accordance with the company law of the nation.
Table of contents
- What Is a Special Resolution?
- Special Resolution Explained
- Template
- Examples
- Difference between Ordinary Resolution and Special Resolution
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- A special resolution in company law is referred to as a resolution passed by a majority of not less than 75% of the members (or of a class of members) of a firm.
- The notice of the meeting must have included the resolution’s text and stated the intention to offer it as “special” for it to qualify as such.
- The resolution may only be adopted as special if the meeting notice so stated satisfies the condition laid by the company’s act.
Special Resolution Explained
A special resolution in company law is only passed after getting approval from at least 75% of the shareholders, in person or by proxy. They must also have the entitlement to vote on the same. Or all the shareholders must approve it in writing at the company’s general meeting. Here one or more shareholders sign one or more instruments. It is a formal way for a business to record decisions reached during a member meeting.
As the name implies, special resolutions introduce “special” or “out of the ordinary” company decisions. It is concerned more with the decisions that affect the constitution of a company. As mentioned, they require at least 75% or two-thirds of the shareholder’s approval to proceed with the decisions because the majority, if not all, of the shareholders are aware of the decision.
They come into being in situations such as:
- Making alterations in the name of the company.
- Making alterations to the articles of association.
- Changing the company from a public company to a private company (or changing a public company into a private company).
- The undertaking of capital reduction by a private company and any capital redemption reserve in the manner authorized by law.
- Authorizing compensation for directors.
- The payment out of capital (for redemption or purchase of any of its shares).
- Winding up the company by members’- voluntary liquidation.
The requirements and necessaries of a special requirement are subject to jurisdictional changes across the world. However, they are not special unless the notices of those meetings include a text of the resolution and specify the intent to propose one as special. Similarly, if the resolution is so stated, it shall only be passed as special.
Template
The format of special resolution may differ according to the updated laws of geographical regions, but in general, its template or format will contain the following information (for proposal):
- The name of the company
- The law under which the resolution is drafted
- Company’s registration number
- The date of resolution
- Whether it is a special or written resolution
- Declaration of intent
- The type of meeting convened to transact the business (extraordinary general meeting)
- The article that needs amendment
- Addition of articles, if any
- Modification of articles, if any
- Signatures of the directors and the respective dates on which they signed.
Examples
Check out these examples to get a better idea:
Example #1
Company “A” made alterations to its Articles of Association, and it needed to move a special resolution in the meeting. The resolution was put to a vote among the 80 shareholders of the company. Out of the 80, 60 voted to alter the Articles of Association.
80*75/100=60
Thus, most of the total members favor it, and therefore they approved it.
Example #2
Company “B” also wanted to make alterations to the Articles of Association. The resolution was put forth for voting among the shareholders 100, and only 40 voted in favor of the alteration. 40 is just 40% of the total members and hence does not qualify for consideration of passing a resolution.
Difference Between Ordinary Resolution And Special Resolution
Some of the differences between an ordinary and special resolution are as follows:
| Key Differences | Ordinary Resolution | Special Resolution |
|---|---|---|
| Meaning | It only needs only a simple majority to get approved. | It needs the approval of the majority (super) of shareholders. |
| Percentage required | An ordinary resolution does not require the approval of 75% or two-thirds of shareholders; more than 50% is sufficient. | “Majority of the shareholders” here means 75% or two-thirds of shareholders present and voting and not a simple majority. |
| Examples of business transactions | It is used to transact ordinary business, such as the appointment of directors, adoption of financial statements, the appointment of auditors and their remuneration, declaration of dividends, etc. | It is used to transact special businesses such as The purchase of shares or securities, Changes to the provisions of the memorandum of association and the objects of the prospectus, changes in the company’s registered office, Modifying the Articles of Association, etc. |
Frequently Asked Questions (FAQs)
Yes. At least 3/4 (or 75% in terms of percentage) of the owners of strata corporations must vote in favor of a special levy. A special levy for unanticipated costs raises if the body corporate did not account for it in its yearly budget.
A supermajority of members must vote in favor of the resolution in order for it to pass. 75% qualify that number. However, there will be no passing of the resolution if more than 25% of the shareholders decide not to favor it.
A special resolution can only undergo changes in very specific circumstances. They need a supermajority, and the changes are approved or accepted once adopted. Therefore any further changes shall be made by passing another resolution. This is subject to the company act provisions of the region.
Recommended Articles
This article has been a guide to what is Special Resolution. We explain the topic in detail including its differences from ordinary resolutions, examples, & template. You may also find some useful articles here –
- Shareholder Resolution
- Memorandum Of Association
- Delaware Corporation
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
