BRIEF BACKGROUND
The decisions taken in a Company effect considerable number of peoples, their livelihood, their employment, and their wealth. The ownership of the corporation is diluted across its numerous shareholders, many of whom have no involvement with the corporation, thus the decisions are taken through Resolution, by Majority of votes.
The notes on clauses to the Companies Bill, 2011 read as follows:
Clause 114. — This clause corresponds to section 189 of the Companies Act, 1956 and seeks to provide that a resolution shall be an ordinary resolution if the votes cast in favour of the resolution exceeds the votes, if any, cast against the resolution by the members. A resolution shall be special when it is duly specified in the notice, calling the general meeting and votes cast in favour is three times the votes cast against the resolution.”
DEFINITION OF RESOLUTION:
Resolution is a decision or agreement mane by the directors and shareholders of the company. When a resolution is proposed it is called motion. After passing a resolution company is bound to act according to it.
A resolution is a formal way in which a company can note decisions that are made at a meeting of company members.
COMPANY RESOLUTION
One of the vital characteristics of the Company form of business includes- Artificial person bearing a separate legal identity. Being an artificial person, the decisions of the Company are its own and the same are passed in the form of Resolutions. Primarily resolutions are formal document that crystallize in writing, important decisions of the Company or Board for that matter. Resolutions are broadly classified as:
- Resolutions passed by the Board
- Resolutions passed by the Members
Board resolutions are formal documents relating to the decisions passed at a Board Meeting. The statutory provisions relating to Board resolutions are Section 179 of the Companies Act, 2013 and Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI). A resolution is a formal way in which a company can note decisions that are made at a meeting of company members.
Board Resolution:
The Act generally clearly demarcates the resolutions that are required to be passed by the members in general meetings and the resolutions that can be passed by Directors in a Board Meeting.
Types of shareholder resolutions:
1. Ordinary Resolution: As per section 114 of Companies Act, 2013, a resolution is called an ordinary resolution when in general meeting, the vote casted whether by showing of hands, on poll, etc. In the favour of resolution by the members of the meeting who are eligible to do so. Any resolution should get more than 50% of the voting in favour, in order to win. Some situations for ordinary resolution are:
- Appointment of Auditors 149
- Declaration of Dividend 149
- Consideration of the Financial Statements, reports of the Board of Directors and Auditors 150
- Appointment of Director in place of those retiring 150;
- Ratification of Appointment of Statutory Auditors and fixing their remuneration
2. Special Resolution: Special resolutions are also known as “Extraordinary Resolutions”. These resolutions are more useful to take some more serious and important decisions of the company. All the special resolutions that are to be passed in the meeting should be prior mentioned in the notice of the meeting. The process is as same as of the ordinary resolution, but the difference is that, these requires at least 75% of the votes in favour to win and sometimes as much as 95%. Some types of special resolutions are:
- Making change in the name of the company
- Changes in Articles of Associations
- Changing a private company to a public company and vice a versa
It can be said that all resolution which are not Ordinary resolutions, are Special resolutions
OBJECTIVES OF PASSING OF RESOLUTION:
Company is required to take many decisions for growth of the business and to fulfil legal requirement of the laws. As company is an artificial person, it cannot take decisions by itself and requires decision of members and directs. Most decisions beyond the normal day-to-day running of a business will require a resolution. These also need to be passed for any decision which affects the constitution or rules of a company.
PROCEDURE FOR PASSING RESOLUTIONS:
A Complete procedure have to follow according to law to pass any resolution. Resolutions can be passed by various method like polling method, show of hands, postal ballot and through circulation.
Passing resolution through postal ballot: As per Central Government notification, few items of business are required to pass only through postal ballot. other than ordinary business and any business in respect of which directors or auditors have a right to be heard at any meeting, transact by means of postal ballot.
Following procedure will be followed to pass resolution by Postal Ballot:
- If a company is required to pass resolution through postal ballot, it will send notice to all the shareholder with draft notice explaining the reason of resolution and requesting them to send their assent or dissent on postal ballot through post within 30 days from the date of dispatching notice.
- An advertisement shall be published at least once in a vernacular newspaper in the principal vernacular language of the district and at least once in English language in an English newspaper having a wide circulation in that district, about having dispatched the ballot papers and specifying therein, the following matters, namely:-
(a) a statement to the effect that the business is to be transacted by postal ballot which includes voting by electronic means;
(b) the date of completion of dispatch of notices;
(c) the date of commencement of voting;
(d) the date of end of voting;
(e) the statement that any postal ballot received from the member beyond the said date will not be valid and voting whether by post or by electronic means shall not be allowed beyond the said date;
(f) a statement to the effect that members, who have not received postal ballot forms may apply to the company and obtain a duplicate thereof; and
(g) contact details of the person responsible to address the grievances connected with the voting by postal ballot including voting by electronic means.
- The notice will be placed on the website of the Company.
- The board will appoint any person as scrutinizer who is not in employment of the company and has ability to conduct postal ballot in transparent and fair manner.
- Postal ballot received from shareholder will be kept in custody of the scrutinizer and he will give his report within seven days from the date of receipt of the postal ballot.
- Postal ballot shall be in the custody of the scrutinizer till chairman sign the minutes of the meeting, after that scrutinizer shall return the same to company who will preserve postal ballots and other important documents safely.
- The result taken in meeting and scrutinizer’s report shall be placed on the website of the company.
CONSEQUENCES FOR NOT PASSING APPROPRIATE RESOLUTION:
If for a particular transaction, no resolutions is passed and filing of the same is not done, it would be non-compliance and such transaction will not come into effect. Every company is required to file a copy of every resolution or any agreement which is passed in a meeting with the registrar within such manner, within such time and with appropriate fees as may be prescribed.
If any company fails to file required resolution or agreement with registrar in a time specified than such company would be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.
CONCLUSION
A company being an artificial person, cannot make decision by its own. Shareholders are the owner of the company and directors are liable for the management of the company. Shareholders and directors are required to take decisions for day to day transaction and growth of the company. Thus, decisions would be taken by resolutions. Resolutions play a vital role for a company. Without passing resolutions company cannot take any decision. Every company has to comply with rules regarding resolution otherwise company will have to face consequences of not complying with the law.
KEY TAKEAWAY:
It can be concluded from this article that resolutions are important for every kind of company whether public-private, listed-unlisted etc. Thus, every company takes decision through resolutions, and copy of such resolution should be preserved.
BIBLIOGRAPHY:
http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17500
www.lawrbit.com/companies-act-procedures/passing-a-board-resolution-by-circulation/
https://www.investopedia.com/terms/c/corporateresolution.asp
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Mehul Solanki is a commerce and law graduate having more than four years of working experience in company law compliances, setting-up companies, compliances of listed companies and not-for-profit companies. He is currently Research Associate & Start-up Consultant at Jaya Sharma & Associates and has authored various articles on corporate and securities law related topics which have been published on various websites, blogs and professional magazines including Compliance Calendar, Taxguru, Legal Service India and journal of ICSI etc.
Ayush Maheshwari is a graduate and a former intern at Jaya Sharma and Associates, currently working as a Compliance Associate, having working experience of 1.5 years in corporate laws and Secretarial Laws, along with the mentioned experiences have penned various articles on topics related to Corporate and Secretarial laws that are published in Institute’s Journal and various other websites.
Menakshi Bajaj is a commerce postgraduate and an aspiring Company Secretary currently undergoing her long-term training at Jaya Sharma and Associates, taking interest in understanding and interpreting complexities of the prevailing law and has panned down various articles on corporate law related topics which have been published on various websites namely: Compliance Calendar, Taxguru etc.
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Author Bio
Clear thinking and logical conclusion.
Thanks for making it simple but effective
Subramanian Natarajan CPA