Understanding Resolutions in Company Law Under the Companies Act 2013

In a company, key decisions are made by the board of directors through resolutions. These resolutions represent agreements made by the company's members during meetings and involve critical decisions. The Companies Act 2013 outlines two main types: ordinary and special resolutions. The company's Memorandum of Association (MOA) and Articles of Association (AOA) guide these resolutions, which can be adopted in both general and board meetings. This article explores the concept of resolutions in company law under the Companies Act 2013, detailing the different types involved.

What is a Resolution in Company Law?

A resolution is a formal decision made by a company to undertake a specific action. Under the Companies Act, there are two main types of resolutions:

1. Ordinary Resolution
2. Special Resolution

Ordinary Resolution

Section 114 of the Companies Act describes ordinary resolutions. In these resolutions, voting occurs by a show of hands, electronically, or through a polling system. The focus here is on majority approval. Only members eligible to vote may do so, and abstentions or prohibitions are not counted. For an ordinary resolution to pass, votes in favor must outnumber those against. A simple majority is required, meaning at least 51% approval. Members should receive advance notice, and the resolution must be filed with the Registrar of Companies (ROC) once signed.

An ordinary resolution is a binding written document, akin to a polling system, where members cast yes or no votes. In smaller companies, voting is often by show of hands, and directors may join meetings in person or via audio or video conferencing. Notices must be given at least seven days prior, sent to the director's registered address.

Situations Requiring an Ordinary Resolution

• Changes in authorized capital
• Changing the company's name
• Altering the MOA under Section 61
• Declaring dividends
• Appointing auditors and setting their pay
• Providing reserve share capital upon conversion to a limited company under Section 65
• Appointing alternate or managing directors under Sections 161, 196, and 197, and director removal under Section 169
• Engaging in restricted non-cash transactions
• Voluntarily winding up the company or appointing an official liquidator
• Electing directors

Special Resolution

Per Section 114(2), a special resolution is noted as such in the meeting notice. It's special if the votes cast in favor are at least three times those against. A special resolution needs 75% of the valid votes in favor. Voting can be by show of hands, electronically, or any other allowed method.

Conditions for a Special Resolution

Notice must specify the intention for a special resolution, clearly stating the agenda. Voting requires a 75% majority. Voting can be by hand or electronically, and eligible votes must be counted.

Situations Requiring a Special Resolution

• Altering AOA for company conversion
• Changing registered office under Section 12
• Altering MOA and AOA under Sections 13 and 14
• Issuing global depository receipts under Section 41
• Issuing sweat equity shares under Section 54
• Issuing shares to employees under Section 62
• Reducing share capital under Section 66
• Buying back shares under Section 68
• Issuing debentures convertible into shares
• Appointing more than 15 directors or reappointing independent directors under Section 149(1)
• Lending or investing under Section 186
• Paying director remuneration
• Approving mergers, amalgamations, or winding up under Section 271
• Voluntarily winding up the company

Passing Resolutions

Resolutions start as motions, becoming resolutions once adopted by a majority. A member introduces and another seconds the motion. Written and signed, these motions must align with meeting agendas, though certain discussions may introduce new motions. Amendments are possible if a member hasn't previously amended or spoken on the motion. The chairman decides on amendments, which, if accepted, are voted on and incorporated into the main motion if approved.

Companies must file form MGT-14 with the ROC within 30 days of passing a special resolution, attaching a copy of the resolution, an explanatory statement under Section 102, and any altered MOA or AOA.

Key Differences Between Ordinary and Special Resolutions

Here’s how these resolutions differ:

• An ordinary resolution needs a simple majority, while a special resolution requires a 75% majority.
• Both resolutions must be submitted to the Registrar, but special resolutions must be sent within 30 days.
• An ordinary resolution is complete with 51% support, whereas a special resolution needs 75%.

Important Elements in Resolutions

Resolutions must list meeting numbers, company name, date, time, financial year, meeting location, and whether it’s a board or general meeting. The board of directors or company secretary must sign it, and the details should appear in the board meeting minutes book.

Conclusion

Company meetings are held to discuss critical business matters, often requiring voting. Resolutions under the Companies Act 2013 help achieve company goals. Ordinary resolutions handle regular business changes, like name changes, while special resolutions address significant issues such as issuing sweat equity or altering the AOA and MOA.