QUICK SUMMARY ↬ Wondering what the decision-making process is like in Companies? Well, this comprehensive guide on Special Resolutions is a must-read in this context! It covers all the aspects including the meaning of special resolution, its requirements, the process of passing it, and a detailed comparison with Ordinary Resolutions for a clearer picture. The stand-out feature of the blog is the detailed list of subject matters requiring special resolutions which enhances your knowledge to the very depth.
Passing resolutions within a company serves as the cornerstone of effective corporate governance, enabling decision-making processes that shape the organization’s direction and operations. While ordinary resolutions address routine matters, special resolutions hold particular significance, tackling issues of exceptional importance that require a higher level of consensus among shareholders. By mandating special resolutions for crucial matters such as alterations to the company’s structure, significant financial transactions, or changes to its constitution, regulatory frameworks ensure transparency, accountability, and shareholder participation in key decision-making processes. Special resolutions thus play a pivotal role in safeguarding the interests of stakeholders, upholding corporate integrity, and fostering trust and confidence in the company’s governance practices.
What is Special Resolution under the Companies Act?
Special resolutions hold a pivotal role in the decision-making process of a company, particularly in matters of significant importance or those requiring shareholders’ approval. According to the Companies Act of 2013, special resolutions are passed when not less than three-fourths of total members present and voting, give their approval, either in person or by proxy, where voting by electronic means is allowed. The requirement of such a huge majority emphasizes the gravity and impact these resolutions have on a company’s affairs.
In essence, special resolutions reflect decisions that carry substantial implications for the company’s structure, operations, or legal status. They are distinct from ordinary resolutions in their voting requirements and are typically reserved for matters of exceptional urgency, such as alterations to the company’s constitution, changes to its share capital, or decisions regarding mergers and acquisitions. The Companies Act of 2013 outlines specific provisions regarding the requirements and process for passing special resolutions, ensuring transparency and accountability in corporate decision-making processes.
What are the Requirements for Passing Special Resolutions in a Company?
Passing a Special Resolution in a company involves meeting specific requirements such as serving prior notice to eligible members, garnering a significant majority of shareholder support, adhering to prescribed voting procedures, and ensuring compliance with legal regulations. These requirements collectively uphold principles of transparency, shareholder democracy, and corporate governance in the decision-making process. Let’s go through these requirements one by one.
- Serve a Prior Notice To Members : The intention to propose a resolution as a special resolution must be explicitly specified in the notice calling the general meeting of shareholders. Such notice must be served at least 21 to 28 days in advance to all the eligible members.
- Include Relevant Information in the Notice: The notice should include sufficient details about the proposed matter requiring approval by special resolution, enabling shareholders to understand its nature and significance.
- Garner Majority Support: A special resolution requires the support of not less than three-fourths of the members entitled to vote and participating in the voting process. Shareholders may vote in person, by proxy, or by postal ballot, as per their convenience and the company’s rules.
- Adhere to Voting Procedures: Shareholders may vote through a show of hands during the general meeting or electronically, depending on the company’s articles of association. In certain cases, shareholders may also have the option to vote by postal ballot, facilitating participation for those unable to attend the meeting in person.
- Compliance and Legitimacy: Strict compliance with the Companies Act and the company’s Articles of Association is essential to ensure the validity and legitimacy of the special resolution. The requirements for passing special resolutions safeguard shareholder rights and promote transparency and accountability in corporate decision-making processes.
Process of Passing Special Resolution in a Company
Passing special resolutions are not mere formalities but crucial determinants of a company’s trajectory. It requires special adherence to legal requirements and procedural formalities outlined by the Companies Act and Articles of Association. From initiating proposals to garnering shareholder support and ultimately implementing approved resolutions, each step plays a pivotal role in shaping the course of the company’s affairs. Let’s delve deeper into each of these steps separately.
Step 1: Initiation of Proposal
Identify a significant matter necessitating a special resolution. Draft a clear and precise resolution addressing the matter effectively.
Step 2: Issuance of Notice To Members
Issue a notice to all eligible shareholders specifying the intention to propose the resolution as a special resolution. Ensure compliance with the notice period which typically ranges between 21 to 28 days prior to the general meeting.
Step 3: Convening the General Meeting
Arrange and convene the general meeting as per the notice issued to shareholders. Ensure the meeting achieves the required quorum specified in the company’s articles of association.
Step 4: Presentation and Discussion
Present the proposed special resolution to shareholders, elucidating its significance and implications. Facilitate a thorough discussion on the resolution, addressing any queries or concerns raised by shareholders.
Step 5: Voting Process
Conduct the voting process through a show of hands, electronic means, or postal ballot, in accordance with the company’s rules. Count and calculate the votes cast in favor of and against the resolution. Verify whether the votes in favor of the resolution meet the prescribed threshold of not less than three-fourths of the members entitled to voting.
Step 6: Declaration of Result
Announce the outcome of the voting process, confirming whether the special resolution has been duly passed or rejected. Document the resolution and its outcome in the minutes of the general meeting for future reference and compliance purposes. As per Section 117 of the Companies, a copy of the resolution must be filed to the Registrar of Companies within 30 days from the date of passing the resolution in form MGT-14.
Step 7: Implementation and Follow-Up
Take the necessary steps to implement the approved special resolution in accordance with legal requirements and corporate governance principles. Communicate the outcome of the resolution to relevant stakeholders, ensuring transparency and alignment with the company’s objectives.
Matters Requiring Special Resolution
Matters requiring special resolution encompass diverse areas such as changes to the company’s constitution, appointment or removal of key personnel, approval for financial transactions beyond specified limits, and even the winding-up or amalgamation of the company. Each of these matters demands a rigorous process of deliberation and approval, ensuring that shareholders have a say in crucial decisions that shape the company’s future. Let’s explore these matters in the detailed list below.
- Amendment of Articles of Association to incorporate entrenchment provisions ( in case of a public company) [s. 5(4)
- Conversion of section 8 company into company of another kind [s. 8(4)(ii) r/w r. 21 of companies (incorporation) rules, 2014 ]
- Shifting of registered office outside local limits of town/city/village [ s. 12(5) ]
- Alteration of MoA [ s. 13(1)]. See previous table “Matters requiring Ordinary Resolution” for “ Alteration of capital clause of Memorandum”
- Changing name of company [ s. 13(2) ]
- Change of Objects [ s. 13(8) ]
- Alter articles to (a) convert private company to public company (b) convert public company to private company, subject to0 provisions of the Act and MoA [ s. 14(1)]
- Variation in contract or object in prospectus [ s. 27(1)]
- Issue of GDRs [ s. 41]
- Private placement of Securities [ s. 42 r/w r. 14(2)(a) of Companies (Prospectus and Allotment of Securities) Rules, 2014 ]
- Variation of rights attached to classes of shareholders [ s. 48(1)]
- Issue of sweat equity shares [ s. 54(1)]
- Issue of Preference shares [ s. 55 r/w r. 9 of Companies ( Share Capital and Debentures) Rules, 2014 ]
- Issue of shares to employees under employee stock option scheme (for public companies) [ s. 62(1)(b)]
- Issue of debentures of loans with option of being converted into equity [ s. 62(3)]
- Reduction of share capital [ s.66 ]
- Purchase of shares of company by employees or trusts for benefit of employees [ s. 67(3)(b). See also Notification No. G.S. R. 464(E), issued under s. 462 dated June 5, 2015, exempting s. 67’s, applicability to certain private companies]
- Buy back of shares [ s. 68(2)]
- Issue of debentures with option to convert to shares [ s. 71(1), proviso]
- Keeping of member’s registers and annual return at place other than registered office [s. 94]
- Appointment of auditor (other than retiring auditor ) or passing resolution that retiring auditor will not be re-appointed [ s. 139(9)(c)]
- Removal of auditor (subject to Central Government approval) [ s. 140) (1) r/w r. 7 of the Companies (Audit and Auditors) Rules, 2014]
- Appointing more than 15 directors [ s. 149(1), proviso]
- Re-appointment of independent director after a term of five years [ s. 149(10)]
- Reduce the number of companies in which a director of the company can hold directorships below 20 companies and below 10 public companies [ s. 165(2)]
- Authorise Board to exercise powers listed in section 180 (1)(a)-(d) ( in case of public companies) [ s. 180(1). See also Notification NO. G.S.R. 464(E), issued under s. 462 dated June 5, 2015, exempting s. 180’s applicability to private companies]
- Authorising giving of loan to a director by passing a special resolution. [ s. 185 (2)]
- Approving a scheme to provide loan to directors, or any other person in whom director is interested [ s. 185. See also Notification No. G.S.R. 464(E), issued under s. 462 dated June 5, 2015, exempting s. 185’s applicability to certain private companies]
- Approval of loan & investments beyond specified limits [ s. 186(3)]
- Approval for appointment of MD/WTD/Manager of over 70 years [ s/ 196(3), proviso]
- Approval of remuneration f directors in excess of limits specified in schedule V and with Central Government approval [ s. 197 (4)]
- Calling for investigation into affairs of the company by Central government or by SFIO [ s. 210(1)(b) and s. 212 (1)(b)]
- Approval for takeover of a company other than listed company [ s. 230(1)]
- Application for removal of name of company from Register of Companies [ s. 248(2)]
- Approval for scheme of amalgamation of sick company [ s. 262(2), proviso]
- Winding up by Tribunal [ s. 262(2), proviso]
- Voluntary winding up [ s. 304(b)]
- Providing sanction for the liquidator [ s. 314(3)]
- Authorising company liquidator to accept shares etc. as consideration [ s. 319]
- Arrangement with creditors in course of winding up [ s. 321(1)]
- Restrictions on exercising of certain powers by company liquidator [ s. 343(1)(b)]
- Disposal of books of company in voluntary winding up [ s. 347(1)(b)]
- Resolution to adopt table F in schedule I for companies registered under Part XXI [ s. 371(3)(a)]
Difference Between Ordinary Resolution and Special Resolution
Differentiating between ordinary resolution and special resolution is pivotal for understanding the gravity of decisions made within a company. While both serve as mechanisms for formalizing decisions, they differ significantly in terms of the matters they address and the thresholds required for approval. Ordinary resolutions typically pertain to routine operational matters, whereas special resolutions tackle issues of substantial importance, necessitating a higher level of shareholder consensus. The table below outlines the key differences between ordinary resolution and special resolution, emphasizing their distinct roles in corporate decision-making processes.
| Aspect | Ordinary Resolution | Special Resolution |
|---|---|---|
|
Nature of Matters
|
Routine operational matters |
Significant and exceptional matters
|
|
Threshold for Approval
|
More than 50% of total members present and voting
|
More than 75% of total members present and voting
|
|
Examples of matters |
Approval of financial statements, Appointment of directors, Declaration of dividends, Ratification of auditor's appointment, Adoption of annual budget, Allotment of shares, removal of directors, approval of directors remuneration and more
|
Alterations to company's constitution, Conversion of company's type, Approval for specific financial transactions, Change of company's name, Change of company's registered office, Winding up, and more.
|
Conclusion
Understanding the meaning of special resolution is fundamental to grasp the decision-making process of a company as outlined by the Companies Act. These resolutions serve as pivotal mechanisms for formalizing decisions on matters of profound consequence, such as alterations to the company’s constitution, major financial transactions, or changes in corporate structure. By necessitating a higher level of consensus among shareholders, special resolutions ensure that decisions of significant importance are made with thorough deliberation and collective agreement. Moreover, they uphold principles of transparency, accountability, and shareholder participation, fostering trust and integrity within the corporate governance framework.
FAQs
Q1: What is a Special Resolution?
A special resolution is a formal decision-making process utilized by companies for significant matters, requiring the support of at least three-fourths of eligible shareholders’ votes during a general meeting. These resolutions address critical issues like changes to the company’s constitution or major financial transactions, ensuring transparency, accountability, and shareholder participation in corporate governance.
Q2: What is the main difference between ordinary resolutions and special resolutions?
The primary difference lies like the matters they address and the threshold for approval. Ordinary resolutions deal with routine operational matters and require a simple majority vote, while special resolutions tackle significant issues and demand a higher majority vote, typically three-fourths.
Q3: When is a special resolution required?
Special resolutions are required for matters of exceptional importance or those stipulated by law. Some of the matters requiring special resolutions are alterations to the company’s articles of association, conversion of the company’s type, changing the company’s name or registered office, issuing debentures or preference shares, and approving significant financial transactions beyond specified limits.
Q4: How is a special resolution passed?
A special resolution is passed when it receives the support of not less than three-fourths of the votes cast by eligible shareholders, either in person, by proxy, or electronically, during a general meeting called for that purpose.
Q5: Can a special resolution be revoked or amended?
Once passed, a special resolution generally cannot be revoked or amended unless permitted by law or the company’s articles of association. However, shareholders may propose subsequent resolutions to address any changes or revisions to the original special resolution.