One of the most common images that comes to mind when thinking about how a company makes decisions is of a group of individuals huddled around a boardroom table.
Although many companies still prefer to decisions this way, companies are also permitted to take advantage of electronic communication methods for their decision-making processes.
Section 281 of the Companies Act 2006 (CA 2006) allows the shareholders of a private company to pass resolutions (another word for decisions) either:
- at a general meeting; or
- as a written resolution.
The advantage of a written resolution is that they are quicker to facilitate than a general meeting. For example, written resolutions reduce the administrative burden of having to book a meeting venue, ascertain each shareholder’s availability, reschedule the meeting if necessary, etc.
Situations where written resolutions cannot be used
Although written resolutions can be an expedient way for shareholders to make decisions, there are some decisions that can only be taken at a shareholder’s meeting.
Section 288 (2) of the CA 2006 states that a private company cannot use a written resolution to:
- remove a director before their term expires, or
- remove an auditor before their term expires.
The CA 2006 restricts public companies from passing written resolutions, and their shareholder resolutions must always be passed at a general meeting. This is even if the public company’s articles of association (Articles) authorise written resolutions.
The procedure for passing a written resolution
A written resolution can be proposed by the directors of a company following the passing of a board resolution to that effect (section 288 (3) of the CA 2006). Alternatively, it can be proposed by the shareholders of a company, provided that those shareholders hold at least 5% of the total voting rights (section 292 of the CA 2006).
Where the written resolution is proposed by shareholders, the resolution needs to be circulated to every shareholder who is entitled to vote within 21 days.
The proposal should state:
- the details of the resolutions proposed;
- which of the resolutions are special resolutions; and
- the date at which the resolution will lapse if not approved (this is normally 28 days after the proposal has been circulated unless otherwise stated in the company’s Articles).
The proposed written resolution can be circulated by post, by email or by publishing it on the company’s website.
To pass an ordinary resolution, more than 50% of the shareholders entitled to vote must approve the decision (i.e. at least 50.1%, rounding up to the nearest whole vote). Special resolutions require a majority vote of not less than 75% of the shareholders entitled to vote. Once the required number of shareholders have signified their agreement to the resolution, it will be passed.
Agreement is usually signified by signing; however, the Articles can state other ways of communicating acceptance, for example, by email confirmation or completing a survey on the company’s website. It is important to note that once agreement to a written resolution has been made by a shareholder, it cannot be subsequently revoked.
The failure of the company to comply with the circulation requirements, especially involving circulating the proposed written resolution to all shareholders with voting rights, can result in serious consequences for the directors. If a director fails to notify a shareholder of the resolution, then under the Companies Act 2006, section 291, they commit a criminal offence. The director may also breach their fiduciary duty to act fairly between the shareholders and give grounds for a claim of unfair prejudice by the unnotified shareholder(s).
Filing a written resolution
Once a written resolution has been passed, it may need to be filed with Companies House. For example, any special resolutions that have been passed need to be filed within 15 days of being agreed to (section 29 of the CA 2006). Some ordinary resolutions also require filing, for example, those which approve the allotment new shares. Failure to comply with the filing requirements is a criminal offence and can result in a fine.
To find out more about written resolutions and complying with the Companies Act 2006, please contact our West London office on 020 3588 3500.