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CA Umesh Sharma

CA Umesh SharmaArjuna (Fictional Character): Krishna, In Maharashtra State discussion on proving Majority and resolution for proving trust in Government is going on. It’s for the formation and running of the Government. But what if, it happens in business, please explain what the importance of majority and resolutions in business.

Krishna (Fictional Character): Arjuna, the foundation of every work is built on Trust. In Businesses there is exclusive importance to majority and resolution, where work is going on together with one or more people. In business each resolution must be in written form. Here oral resolutions are not accepted. Legal negligence is not affordable to business while taking significant decisions. There are many examples of Big Business houses, Co-operative banks, Educational institutions, charitable institutions, Sugar , etc. are found were there ownership got transferred or destroyed for want of majority. In business, as per nature of constitution i.e., Private and Public limited company, LLP, Partnership firm, Co-operative society, etc. rules are framed relating to the majority ,resolution and the same should be followed. If any dispute arises then everyone recalls the law. But due to issues of conflicts in partner, stakeholders, many businessmen’s move towards the proprietorship.          

Arjuna: Krishna, What are the rules for majority and resolution in Public Limited Company and Private Limited Company?

Krishna: Arjuna, both in Public Limited Company and Private Limited Company there is separation of ownership (shareholders) and management (Board of Directors). For both of them the rules regarding majority and resolutions are different. If shareholder’s hold 50% or more share then clear majority can be obtained. Restrictive/special rights can be obtained if 25% or more share ownership is there. Further if the shareholding of one shareholder is more than others, then he has the special rights and the same can be used while passing the resolutions in Annual General Meetings or as the case may be. To prove majority in Board of Directors, simple majority that means more the persons on one’s side the majority will be of that side. E.g. if there is a board of 10 directors then majority will form for 6 or more directors. According to section 114 of New Companies Act 2013, there are two types of resolutions.1) General resolution 2) Special resolution. Further unanimous resolutions are also there for specific purpose. There are different rules for the meetings and resolutions of Board of Directors and shareholders. Now Government has introduced many restrictions in new Companies Act 2013, so that issues of directors and shareholders should not be detrimental to companies object. Further the restrictions of SEBI are applicable to Public Limited Company. In case of dispute, Registrar of companies, Company law board, SEBI, Courts will decide whether there is majority or not. Thus while running companies take care of egos of stakeholders.

Arjuna: Krishna, What are the rules for majority and resolution in Co-operative societies and Charitable Institutions?

Krishna: Arjuna, as the provisions of Companies Act are stringent, likewise there are stringent provisions of Co-operative societies or trust related to majority and resolutions. Under these category Co-operative societies, Banks, Sugar Factories, etc. falls. Under Trust, Educational Institutions, Charitable Institutions, etc. falls. The intention of Co-operative societies may be of business but the trusts have no such intention. Co-operative Society’s Act 1960 is applicable to co-operative societies. In this the members are the owners and boards of directors are the executors of work. In the society every member has the right of voting and resolutions are approved with simple majority. To prove majority simple majority which means more the persons on one’s side the majority will be of that side. E.g. if there are 10 members then majority will form for 6 or more members. In Maharashtra, Bombay Public Trust Act 1950 is applicable to charitable institutions. But the exception in this is that while selling the immovable property of charitable institution and while appointing new trustee the resolution should be approved unanimously. Without majority running such type of originations is very difficult task.

Arjuna: Krishna, Is it necessary to keep record related to resolution?

Krishna: Arjuna, according to respective laws, every resolution should be written in Minute Books. Notice of every meeting should be issued within time and acknowledgement of direct receipt should be kept on record. Also signature on member attendance register should be taken and in next meeting the minutes of last meeting should be read and in this note of proposer and accepters. The details of subject should be provided clearly in notice. The Companies Act 2013 provides many section related to maintenance of records of resolutions of Company. Therefore one must follow them compulsorily. Record should be maintained with advice of Company Secretory and should be filed with Registrar of Companies in time. Many a time’s small private limited companies delays in keeping the record. Most of the times dispute arises because of improper maintenance of record, therefore to avoid this; record of every transaction should be kept. Most importantly there should be transparency while passing resolution in businesses.

Arjuna: Krishna, that was of great importance to me. Now please tell what are the rules for majority and resolution in Partnership Firm and Limited Liability Partnership?

Krishna: Arjuna, Partnership and Limited Liability Partnership are different laws, but the rules for majority and resolution are same in both. Rules for resolution are not like companies but there is importance of signature of partner on a particular transaction or record. Partnership Firm runs according to the Indian partnership Act 1932 and there is extreme importance to partnership deed. Similarly, Limited Liability Partnership Act 2008 is applicable to LLP and in this LLP agreement is most important. In Partnership deed/ LLP agreement the ownership of every partner and the rights of every partner in business, is mentioned. Majority will be received if 50% or more ownership is of partner. And the important work i.e. Rights to operate bank Accounts, Assets selling and purchase right, etc. should be mentioned in it. The compliances of Partnership Act/LLP are easy; as compared to Companies Act therefore many businessmen go for Partnership/LLP nowadays.

Arjuna: Krishna, what one should learn from the rules of majority and resolution?

Krishna: Arjuna, when things go in right direction in business then there is negligence on these things, but if ego of any member or partner is hurt, opinion changes or any dispute arises then majority and resolution rules comes to help. Delay in compliance of law or mistake may take the legal battle to unpredictable situation. Different groups may get formed in business and economic hardship may arise in business. Politics in business and Business of politics both are bad, whether in Business or Government. One should continue good deeds, even if there is no majority, same rule applies in social and family life also.    

Dear Tax guru lovers, Please share your views.

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1. Central Council Member of ICAI. 2. Vice-Chairman of WIRC of ICAI for the period 2015-2021. 3. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 4. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNEETI” published in Lokmat on every View Full Profile

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July 2024