Are you tired of feeling lost and confused when it comes to understanding legal jargon? Well, fear no more! Here we are going to demystify the realm of corporate decision-making by breaking down the two types of resolutions: ordinary resolution and special resolution.
An ordinary resolution is a resolution passed by a simple majority of members’ votes, used for routine matters in the normal course of business. While special resolution requires the approval of a specific majority (usually 75% or more) of members’ votes and is used for significant or fundamental matters that impact the company.
Ordinary vs. Special Resolution
|Ordinary Resolution||Special Resolution|
|An ordinary resolution is a resolution passed by a simple majority of members’ votes, typically used for routine matters in the normal course of business.||A special resolution is a resolution that requires the approval of a specific majority (usually 75% or more) of members’ votes, used for significant or fundamental matters that impact the company.|
|They are used for day-to-day operational decisions, such as appointing directors, approving financial statements, or declaring dividends.||They are required for matters like altering the company’s constitution, changing the company name, approving major transactions, or winding up the company.|
|An ordinary resolution is passed by a simple majority, meaning more members vote in favor than against, provided the minimum quorum requirement is met.||A special resolution requires a higher majority, typically 75% or more of members’ votes, to ensure broader consensus for significant decisions affecting the company.|
|They generally require a shorter notice period, such as 14 days, before the meeting where the resolution will be proposed and voted upon.||They usually require a longer notice period, such as 21 days, to provide adequate time for members to consider the significant matters at hand.|
|Ordinary resolutions may not require filing with regulatory authorities, depending on the jurisdiction and the specific nature of the resolution.||Special resolutions often need to be filed with relevant regulatory authorities to ensure compliance and provide transparency regarding significant company decisions.|
|They are legally binding and valid decisions for routine matters, but they may be subject to challenge if they violate any statutory or constitutional provisions.||They carry greater legal weight and significance, as they are used for major company decisions and are more difficult to overturn or challenge due to the higher majority requirement.|
What are Ordinary Resolutions?
Ordinary resolutions are resolutions passed by a simple majority of votes at a company’s general meeting. They are typically used for routine matters and day-to-day business decisions.
Ordinary resolutions are important for matters such as appointing directors, approving financial statements, declaring dividends, and other non-fundamental decisions. These resolutions require more than 50% of the votes cast by shareholders present or represented by proxy to be passed.
What are Special Resolutions?
A Special Resolution is a resolution passed by a company or other organization that requires a higher-than-normal majority for approval. It is often used for important decisions, such as changing the company’s articles of incorporation or selling all or part of the company.
Special resolutions are typically used when it is desirable to have a higher level of support for a particular decision. For example, if a company is considering changing its name or altering its corporate structure in some way, it may be appropriate to require a supermajority vote in order to ensure that the decision has broad support within the company.
When should an Ordinary or Special Resolution be used?
Some examples of matters that would typically be approved by an ordinary resolution include:
- Amending the articles of incorporation or By-Laws
- Approving annual financial statements
- Electing directors or officers
- Declaring dividends
Special resolutions are typically required for more significant corporate actions, such as:
- Amending the articles of incorporation or By-Laws in a material way
- Approving a merger or acquisition
- Selling all or substantially all of the company’s assets
- Dissolving the company
Reasons for choosing either type of resolution
- The level of support required: An ordinary resolution requires a simple majority (50% +1) of votes in favor, while a special resolution requires a supermajority (75% or more) in order to pass. This means that if you’re looking to make a decision that has broad support from your shareholders, an ordinary resolution may be the way to go. However, if you’re looking to make a more significant change that requires buy-in from a large majority of shareholders, a special resolution may be necessary.
- The level of impact: Another key factor to consider is the level of impact that the proposed resolution will have on the company. For example, if you’re looking to make a relatively minor change, such as changing the company name or address, an ordinary resolution may be sufficient. However, if you’re looking to make a major change, such as moving the company headquarters or changing the company’s legal structure, a special resolution may be required.
- Timing considerations: Timing can also be a factor in deciding which type of resolution to use. If you need to make a quick decision without going through the full shareholder approval process, an ordinary resolution may be the way to go. However, if you have time to build support and get shareholder
Process for drafting and approving each type of resolution
- The board of directors should discuss the matter and decide whether or not to propose a resolution to the shareholders.
- If they decide to go ahead with a proposal, they will draft the resolution and circulate it to all shareholders.
- A shareholder meeting will be held where the resolution will be voted on. For an ordinary resolution, a simple majority (50% + 1) is required for passage; for a special resolution, a supermajority (75% or more) is required.
- Once approved, the resolution becomes binding on the corporation and its shareholders.
Key differences between ordinary and Special Resolution
- Majority Requirement: Ordinary resolutions require a simple majority of votes (more than 50%) cast by shareholders present or represented by proxy to be passed. Special resolutions, on the other hand, typically require a higher majority, often 75% or more, for their passage.
- Matters Addressed: Ordinary resolutions are used for routine matters and day-to-day business decisions, such as appointing directors, approving financial statements, or declaring dividends. Special resolutions are required for significant or fundamental matters that impact the company, such as altering the company’s constitution, changing the company name, or approving major transactions.
- Notice Period: Ordinary resolutions usually require a shorter notice period, such as 14 days, before the meeting where the resolution will be proposed and voted upon. Special resolutions often require a longer notice period, such as 21 days, to provide adequate time for members to consider the significant matters at hand.
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Ordinary Resolutions are used for routine matters and require a simple majority for passage, while Special Resolutions are employed for significant or fundamental matters and necessitate a higher majority. The varying majority requirements reflect the importance of broader consensus for critical decisions. Understanding the differences between these resolution types enables effective governance and decision-making processes within organizations.