Resolution

Resolution

Resolution is the decided conclusion of a motion in any meeting. In the meetings, different motions may be moved. They are discussed, thrashed out, often amended, seconded or voted and if finally carried they become the resolutions. So, the record of expression of the opinion or decision of a meeting is what is called the resolution. The ultimate aim of a meeting is to adopt resolutions.

Kinds of resolutions

A company sits for a meeting to arrive at resolutions to make way for its certain future actions. Without such resolution it cannot undertake those, rather, it will not get the strength to take the course. But the resolution itself has to be strengthened, depending on its gravity. There may be different kinds of resolution for which different notice period and voting requirements will be necessary. The various kinds of resolutions are discussed in the following paragraphs.

1. Ordinary resolution
2. Special resolution
3. Extraordinary resolution
4. Class resolution

The various kinds of resolutions are discussed in the following paragraphs.

Ordinary resolution

Though not defined by the Act, this is the resolution passed by a simple majority of members entitled to be present either in person or by proxy and to vote at the general meeting. Business declared by the Act or the Articles to be transacted by a resolution will mean an ordinary resolution unless the context otherwise provides. The matters in a meeting which are normally discussed and carried are all ordinary resolutions. To pass an ordinary resolution no special time limit is required for the notice, but the normal time is to be maintained which is 14 clear days. The general meetings held every year transact primarily the ordinary resolutions.

Subject to the articles, shareholders ordinary resolution is sufficient for:

1. transaction of ordinary business (consult topic 140 for ordinary business),
2. fixation of any remuneration,
3. increase of paid-up capital,
4. consolidation of shares or subdivision of shares,
5. conversion of shares into stock and vice versa,
6. cancellation of unissued shares,
7. voluntary winding up where the objects for which it was formed is attained,
8. voluntary winding up where period of duration of the company has elapsed
9. appointment of liquidator in a member’s voluntary winding up,
10. registration of unlimited company as limited, and
11. adjournment of a meeting.
12. Approval of annual account
13. Approval of a final or interim dividend,
14. Re-appointment and appointment of a director,
15. Reappointment of auditors,
16. Fixation of auditor’s remuneration

Voting Power Of Ordinary Resolution

The consent of at least 51% of the members must be obtained to have a valid resolution passed. Therefore, a shareholding ratio of 51% or higher means that a shareholder has the authority to make the above decision.

Right to read accounting books: All shareholders are granted the right to view accounting books. -Section 191

Special resolution

It is to be passed by a majority of not less than three-fourth (i.e. 75%) of the members present and vote in person or by proxy. The resolution to be carried as a special resolution must be clearly and explicitly spelled out in the notice and must be notified atleast 21 clear days before the meeting [sec. 87(2)]. It must also state the intention of the company to pass the same as a special resolution. It is to be noted carefully that when the notice clearly states “that the following resolution will be proposed as a special resolution”, instead of “to consider and if thought fit, to pass the resolution, with or without modification”, no amendment can be moved in that special resolution.

The following are the cases where special resolutions are necessary:

1. To change the name of the company. [sec. 11(6)]

2. To change provisions of the object clause. [sec. 12(1)]

3. To alter or add to its articles. (sec. 20)

4. To reduce share capital in any way. (sec. 59 & 70)

5. To make reserved capital. (sec. 74)

6. To make directors’ liability unlimited. [sec. 76(1)]

7. To remove a director from office. [sec (0.106) * (1)]

8. To sanction additional remuneration to a managing agent [sec.119(2)]

9. To appoint inspector to investigate company affairs [sec.207(1)]

10. To remove auditor before expiry of term [210(9)]

11. On court winding up. [sec. 241(i)]

12. On voluntary winding up. [sec.286(b)]

13. To confer authority on the liquidator of a voluntary winding up. [sec. 294(1)]

14. On substitution of MA & AA for deed of settlement [sec. 368(1)]

Voting Power Of Special Resolution

According to the Act of-Section 87(2) It is to be passed by a majority of not less than three-fourth (i.e.,75%) of the members present and vote in person or by proxy. Therefore, a shareholding ratio of 75% or higher means that a shareholder has the authority to make the above decision.

According to the Act of -Section 84; 195- Right to convene Special resolutions, right to request business investigation Shareholders with a shareholding ratio of 10% or more are granted the right to convene a special resolution and the right to request a business investigation.

According to Act of -Section 85 (2) (a)- Right to propose agenda: Shareholders with a shareholding ratio of 5% or more are granted the right to propose the agenda.

Extraordinary resolution

This is the resolution passed by a majority of not less than three-fourth of such members as being entitled to do so, vote in person or where proxies are allowed. by proxy at a general meeting of which notice specifying the intention to propose the resolution as an extraordinary resolution has been given [sec 87(1)]. The time length of the notice in this case is the normal one, that is fourteen clear days Extraordinary resolutions are passed for very limited instances and mainly in winding up cases.

Cases where extraordinary resolutions are necessary:

1. On voluntary winding up because of excess liability. [sec.286(c)]

2. To sanction certain acts of liquidator in case of voluntary winding up. [sec.308(1)(a)]

3. To sanction all arrangement between company and creditors [sec.311(1)]

4. To dispose off documents on voluntary winding up (sec. 339(1)(b)]

Confusion and ambiguities may arise on the question of applicability of certain provisions of the Act while framing ordinary or special resolutions. Whatever may be the case of it, however, every care and caution has to be made in framing the ordinary, extraordinary or special resolutions.

Voting power of Extra-Ordinary Resolution

It is to be passed by a majority of not less than three-fourth (i.e., 75%) of the members present and vote in person or by proxy. Therefore, a shareholding ratio of 75% or higher means that a shareholder has the authority to make the above decision.

Class resolution

These resolutions are designed to protect interests in a special manner and an applicable to modify or vary the rights of particular class of shareholders. Th resolution is to be passed by a majority of votes as are prescribed in the article of association of the company for that particular class of shareholders.

Restrictions for passing resolution:

The following are the limitations where Board resolution cannot be passed by circulation. Instead those are required to be placed before full-fledged Board meeting:

i) In case of a public company, or its subsidiary private company, casual vacancy in the Board of directors cannot be filled through passing a resolution by circulation.

ii) Appointment of a person as Managing Director of the company.

iii) Investment in shares or debentures of any other company.

iv) Disclosure of directors interest in any contract or agreement already entered into or proposed to be entered into with the company.

v) To accord sanctions to a director, his relative or firm etc., to enter into contract for sale, purchase, supply of any goods, materials or services or for underwriting subscriptions of shares in or debentures of the company.