Summary: Resolutions are formal decisions made by a company’s Board of Directors or shareholders. Board resolutions are passed by directors to manage internal affairs, while resolutions passed by shareholders in a general meeting can be either ordinary or special. An ordinary resolution requires more than 50% of the votes in favor and is typically used for routine matters. A special resolution requires at least 75% of the votes in favor and is reserved for significant decisions that affect the company’s structure or long-term plans. It’s important not to confuse an Ordinary Resolution with Ordinary Business. Under the Companies Act, Ordinary Business includes four specific items like adopting financial statements and appointing auditors, all of which require an ordinary resolution. Any other matter is considered Special Business. However, not all Special Business requires a special resolution; some significant matters, such as increasing authorized share capital or approving a related party transaction, can be passed with an ordinary resolution, while other critical decisions, like a reduction of share capital or a company strike-off, necessitate a special resolution. Additionally, a wide range of administrative tasks, from opening a bank account to appointing key managerial personnel, are handled through Board resolutions.
Resolutions under Companies Act
Resolution- A resolution is a formal decision taken by a company’s Board of Directors or shareholders, depending on the nature of the business item.
- Board Resolution: Passed by the Board of Directors to manage the internal affairs and administrative decisions of the company.
- Ordinary Resolution: Passed by shareholders in a general meeting (AGM or EGM), where more than 50% of the votes are in favor.
- Special Resolution: Passed by shareholders, requiring at least 75% of votes in favor. It is used for critical decisions affecting the company’s structure or long-term plans.
Many people misunderstand the term Ordinary Resolution with Ordinary Business. Let’s get deep into this!
There can be two types of business for shareholders to be passed in General Meeting (AGM or EGM). Accordingly, All Ordinary Business needs an Ordinary Resolution — but not all Special Business needs a Special one.
Ordinary Business (as per Section 102(2) of the Companies Act):
– Adoption of financial statements
– Declaration of dividend
– Appointment or reappointment of directors retiring by rotation
– Appointment or reappointment of auditors and fixing their remuneration
Special Business:
Any business other than the above four — whether transacted at an AGM or an Extraordinary General Meeting (EGM) — is classified as Special Business.
Special ≠ Special Resolution. There are matters which are under special business but require an ordinary resolution.
Examples of Special Business (with both Ordinary and Special Resolutions):
Ordinary Resolution:
– Increase in Authorised Share Capital (if AOA allows)
– Appointment of Director (other than retiring by rotation)
– Approval of Related Party Transaction
– Buyback of shares up to 10%
– Company to contribute to bona fide charitable and other funds
Special Resolution:
– Reduction of share capital
– Buyback of shares for more than 10%
– To approve Preferential allotment
– To make an application to Registrar for striking off the name of the company
– Appointment of more than 15 directors
– For Alteration of Memorandum of Association of the Company
– Auditor appointed u/s 139 may be removed from his office before the expiry of the term
– Appointment of Managing director or Manager or Whole Time Director who has attained the age of 70 years
– Loans and investments by the Company after threshold
Matters requiring Board Resolution:
– To make calls on shareholders in respect of money unpaid on their shares
– To authorize buy-back of securities
– To issue securities, including debenture
– To invest the funds of the Company
– To grant loans or give guarantee or provide security in respect of loans3
– To approve financial statements of the Company and the Board’s Report
– To diversify the business activities
– To approve amalgamation, merger or reconstruction
– To take over a company or acquire a controlling or substantial stake in another company
– To make political contribution
– To appoint or remove KMP
– To appoint internal auditors and secretarial auditor
– Opening of Bank Account
– Closing of Bank Account
– To take note of Directors interest and shareholdings
– Appointment of 1st auditor within 30 days of incorporation of Company
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