Understanding Ordinary And Special Resolutions

In the business world, the board of directors make decisions and take action on behalf of the company. But how does this work? It isn’t as simple as the decisions we make in our everyday lives.

The decisions taken at this level have an effect on a considerable number of people, their livelihood, their employment and their wealth. The board of directors pass corporate resolutions to make any significant decisions binding. A document in writing that is normally created by the board of directors certifying a binding corporate action is called a resolution.

What is an Ordinary Resolution?

As per the provisions of Section 114 (1) of the Companies Act, 2013-

A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so entitled and voting. 

Key points to be considered:

• This type of resolution is passed for the conduct of ordinary business matters at the AGM such as:-
  • Adoption of the financial statements
  • Declaration of dividend
  • Appointment of directors
  • Appointment of auditors and their remuneration
• The votes cast in favour of the resolution must exceed the votes cast against it. In other words, a simple majority in favour of the motion shall allow the resolution to be passed.
• Notice of the meeting must have been served to all the members in advance, complying with the provisions of the Companies Act, 2013.
• The consent of at least 51% of the members must be obtained to have a valid resolution passed.
• The votes of the members eligible to vote will be the ones considered for the count.
• In certain cases, the copy of the ordinary resolution must be filed with the Registrar once the necessary signatures are obtained.

What is a Special Resolution?

As per the provisions of Section 114 (2) of the Companies Act, 2013- 

A resolution shall be a special resolution when-

• the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution;
• the notice required under this Act has been duly given; and
• the votes cast in favour of the resolution, whether on a show of hands or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.

Key points to be considered:

• Notice of the meeting must have been served to all the members in advance, complying with the provisions of the Companies Act, 2013.
• The notice handed over to the members prior to the meeting has to specifically mention on its agenda of the passing of a special resolution.
• In order for a special resolution to be passed at a General Meeting, a supermajority is required in favor of it.
• Supermajority refers to at least 75 percent of the members voting in favor of the resolution.
• The votes of the members eligible to vote will be the ones considered for the count.
• Some of the matters that require a special resolution are:- – Amendment of the Articles of Association.
  • Issue of sweat equity shares.
  • Change in the registered office of the company.
  • Reduction of share capital.
  • Removal of an auditor before the expiry of his term.
  • Buyback of shares.
  • Appointment of more than 15 directors.
  • Loans and investments by the company.

Passing of a Resolution

A proposed resolution is called a motion until it receives approval to be passed. Once the necessary approval is obtained as per the provisions of the Companies Act, 2013, it becomes a resolution. When it comes to matters requiring a special resolution, the same has to be included in the agenda of the meeting which is given at the time the notice of the meeting is sent out. For matters that do not require a special resolution as per the Act, motions that arise out of negotiation may be allowed as well.

As per the Secretarial Standard-2 Paragraph 7.1, each resolution is generally introduced by one member and thereafter seconded by another member. The motion that is under consideration may be amended during the debate. There can be any number of amendments to the main motion. However, an amendment can be amended only once. Where a motion carries a large number of amendments, after obtaining common consent, a new motion may be passed, incorporating all the amendments, and the old motion may be withdrawn.

Form MGT – 14 is required to be filed mandatorily with the Registrar of Companies within 30 days of the resolution being passed, where the resolution is a special resolution, especially. Attachments include:- 

• Copy of the resolution passed.
• An explanatory statement under section 102 of the Companies Act, 2013.
• Copy of the Articles of Association (where any change is made).
• Copy of the Memorandum of Association (where any change is made).

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.