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May 22nd 2014 / BY: Wisteria

Ordinary Resolution vs. Special Resolution

When shareholders make decisions they do so by passing resolutions, of which there are two types under the Companies Act 2006; ordinary and special. The complexity of the issue being decided and the impact that it will have on the company will determine which type of resolution is required.

This requirement can usually be found in relevant legislation, such as the Companies Act 2006, or in the company’s Articles of Association. It is important to ensure that the correct procedure is followed to make a change, because if the process is not carried out correctly or the wrong type of resolution is used, the change made could be deemed to be invalid.

Ordinary Resolutions

An ordinary resolution is used for routine business where a simple majority of shareholders is needed to approve a change. The majority of changes made within a company will require an ordinary resolution. Examples of such changes include the removal of a director from office or the termination of the appointment of an auditor.

Special Resolutions

A special resolution is required where greater changes are being made, such as to the company’s constitution, name or for some instances of changes to share capital. In these circumstances due to the significance of the change, the Companies Act 2006 requires that more shareholders approve the change. Therefore rather than a simple majority, a 75% majority is required. This means that in practice these resolutions can be more difficult to pass.

Written Resolutions

A written resolution is not a type of resolution in the same way that an ordinary or a special one is. Instead, a written resolution is a process that private limited companies can use to pass ordinary and special resolutions instead of by holding a general meeting. For more information please see: When can I use a Written Resolution? 

Other Considerations

If the company cannot use the written procedure it will be necessary to call a general meeting of the company to put the resolution to shareholders. For certain changes, such as removing a director from office, the written resolutions procedure cannot be used. In these cases the company must  ensure that other requirements for holding a meeting are met, such as the correct notice is given and the quorum is present. Following the resolution being passed some changes require that a copy is filed with Companies House.

Ordinary vs special resolution enquiries

The full requirements for making changes to your company can be found within relevant legislation, such as the Companies Act 2006. If you need assistance making a change to your company, please contact us on 020 8429 9245 or at info@wisteria.co.uk.