Introduction
Under the Companies Act 2006, a written resolution is a formal mechanism by which private companies can make decisions without holding a general meeting. This procedure allows eligible members to signify their agreement to a proposed resolution in writing, in accordance with statutory requirements. Written resolutions are governed by Sections 288 to 300 of the Act and are key to efficient corporate governance within private companies. Understanding the legal framework, procedural requirements, and limitations of written resolutions is essential for those studying company law and preparing for the SQE1 FLK1 examination.
Legal Framework
Written resolutions are meticulously regulated under the Companies Act 2006 to ensure that decisions made outside of general meetings are legally valid and binding. The following key provisions outline the statutory framework:
Applicability to Private Companies (Section 288)
Written resolutions are available solely to private companies. Public companies are prohibited from using this mechanism, highlighting the importance of formal meetings for wider shareholder engagement in publicly traded entities.
Initiation of Resolutions (Sections 291 and 292)
- Directors' Proposals: The board of directors can propose a written resolution.
- Members' Proposals: Members holding at least 5% of the total voting rights have the right to request the circulation of a written resolution.
This dual pathway ensures that both management and significant shareholders can initiate important decisions.
Circulation Requirements (Sections 291 to 296)
Once proposed, the company must circulate the written resolution to every eligible member. Circulation must be done promptly and can be carried out via:
- Postal Mail
- Electronic Communication: Email or other agreed electronic means
- Combination of Methods
The accompanying documents must include:
- The text of the resolution
- An explanation of how to signify agreement
- The date by which the resolution must be passed
Voting Thresholds
- Ordinary Resolutions (Section 282): Require a simple majority of more than 50% of total voting rights.
- Special Resolutions (Section 283): Require a majority of not less than 75% of total voting rights.
These thresholds ensure that resolutions reflect the will of the requisite proportion of shareholders.
Timeframe for Agreement (Section 297)
Members must signify their agreement within 28 days of the circulation date, unless the company's articles specify a different period. Failure to respond within this timeframe is treated as non-agreement.
Types of Written Resolutions
Private companies may utilize two primary types of written resolutions, each serving different purposes within corporate decision-making.
Ordinary Resolutions
An ordinary resolution requires a simple majority (more than 50%) of eligible voting rights to pass. This type of resolution is suitable for routine business matters, such as:
- Approving annual accounts
- Appointing or removing directors (in some cases)
- Authorizing allotment of shares
Special Resolutions
A special resolution necessitates a higher threshold of not less than 75% of eligible voting rights. Special resolutions are reserved for more significant decisions, including:
- Altering the company's articles of association
- Changing the company's name
- Approving a reduction of share capital
Procedural Requirements
The process of adopting a written resolution involves several key steps designed to uphold fairness and legal compliance.
Initiation and Circulation
Proposal Initiation: A written resolution may be proposed by:
- The board of directors
- Members holding at least 5% of voting rights
Circulation: The company must distribute the resolution to all eligible members using agreed methods of communication. Circulation should include clear instructions on how members can signify their agreement.
Example:
Consider "Tech Innovators Ltd," a private company with 50 shareholders spread across the UK. The directors propose an ordinary written resolution to approve a new business strategy. The resolution is emailed to all shareholders, ensuring prompt delivery and receipt.
Agreement and Voting
Signifying Agreement:
- Members indicate agreement by signing and returning the resolution.
- Electronic signatures are acceptable if permitted by the company's articles.
Timeframe:
- Members have 28 days to respond, unless a different period is specified.
Passing the Resolution:
- An ordinary resolution passes when more than 50% of total voting rights agree.
- A special resolution passes when not less than 75% agree.
Example:
In "Tech Innovators Ltd," if shareholders representing at least 26 voting rights agree to the ordinary resolution within 28 days, the resolution passes.
Record-Keeping
The company must retain copies of:
- The written resolution
- Evidence of members' agreement
These records must be kept for at least ten years at the company's registered office or another specified location.
Strategic Applications in Corporate Governance
Written resolutions offer private companies several strategic advantages in corporate governance.
Efficiency in Decision-Making
By eliminating the need to convene general meetings, companies can expedite decision-making processes. This is particularly beneficial when swift action is required to capitalize on market opportunities or respond to urgent matters.
Example:
"Green Energy Solutions Ltd" needs to approve a time-sensitive contract with a new supplier. Through a written resolution, the company secures the necessary shareholder approval within days, avoiding delays associated with scheduling a meeting.
Cost Savings
Organizing general meetings can be costly, especially for companies with a large shareholder base. Written resolutions reduce expenses related to venue hire, travel, and administrative support.
Enhanced Shareholder Participation
Written resolutions enable shareholders who cannot attend meetings in person to participate in important decisions. This inclusivity ensures that shareholders' voices are heard.
Limitations and Safeguards
While written resolutions provide efficiency, several limitations and legal safeguards ensure that shareholder rights are protected.
Exclusion of Certain Decisions
Certain decisions cannot be made by written resolution and require a general meeting, such as:
- Removal of a director before the end of their term (Section 168)
- Removal of an auditor before the end of their term (Section 510)
These exclusions ensure that shareholders have the opportunity for discussion and debate on significant matters.
Lack of Collective Discussion
Written resolutions do not provide a forum for shareholders to collectively discuss the proposed resolution. This can limit the exchange of ideas and prevent shareholders from persuading others to consider different viewpoints.
Non-Response Impact
Shareholders who do not respond are effectively counted as not agreeing to the resolution. In companies with a diverse or passive shareholder base, obtaining the required majority can be challenging.
Articles of Association Provisions
A company's articles may include additional requirements or restrictions on the use of written resolutions. Companies should review their articles to ensure compliance with both statutory provisions and internal regulations.
Conclusion
The statutory framework governing written resolutions under the Companies Act 2006 represents a complex interplay between legal obligations and practical corporate governance. Sections 288 to 300 specify the precise requirements that private companies must follow when utilizing written resolutions, ensuring that decisions are made lawfully and with appropriate shareholder involvement.
Key technical principles include strict adherence to procedural steps for initiating and circulating resolutions, as outlined in Sections 291 to 296, and compliance with voting thresholds established in Sections 282 and 283. These principles interact to balance the need for efficient decision-making with the protection of shareholders' rights.
For instance, the exclusion of certain matters from the written resolution procedure highlights the law's intent to support transparency and collective deliberation on significant issues. Additionally, allowing members holding at least 5% of voting rights to propose resolutions under Section 292 demonstrates a statutory safeguard for minority shareholder interests.
In summary, the use of written resolutions requires meticulous compliance with the Companies Act 2006. Private companies must ensure that all procedural requirements are met to validate resolutions and uphold corporate governance standards. A detailed understanding of these statutory provisions is essential for legal professionals advising private companies and is of particular relevance for candidates preparing for the SQE1 FLK1 examination.
