💡Key Insights
- An ordinary resolution is passed when more than 50 percent of eligible votes are in favour, making it suitable for routine company decisions such as appointing directors or approving basic operational matters.
- A special resolution requires at least 75 percent approval from eligible voters, which ensures stronger consensus for significant decisions like changing a company constitution or winding up a company.
- The key difference between an ordinary and special resolution lies in the voting threshold, with special resolutions providing greater protection for shareholders when fundamental company changes are proposed.
- Companies must use the correct type of resolution to remain compliant with corporate law, as passing a major decision with an ordinary resolution instead of a special resolution can invalidate the outcome and create legal risk.
Have you ever wondered what an ordinary and special resolution is? Do you know the difference between them? This article answers both these questions. In the past, we covered what company constitutions are and what rules can be included in them. However, in this article, we will cover what ordinary and special resolutions are and how they differ.
Ordinary Resolution
These resolutions cover general matters, such as the everyday running of the company and the appointment of auditors. To pass, ordinary resolutions only need a bare majority of votes at a general meeting or from the Board of Directors when a general meeting is not necessary. Below is a list of common topics for ordinary resolution:
- Reelecting Directors;
- Increasing number of Directors;
- Deciding to invest in a start-up;
- Expanding market operations.
Special Resolution
A special resolution is only for exceptional cases. These include when the company wants to change its name, windup, change its constitution or when outlining the powers and responsibilities of an appointed liquidator. The Corporations Act 2001 (Cth) outlines the process for special resolutions.
- Before holding a meeting, all members must be given notice of the special resolution and with the intention to vote at the meeting;
- At least 75% of voters present at the meeting must vote in favour for the it to pass;
- Proprietary companies with 1 or more Directors can pass a special resolution, as long as all members sign the resolution document. In the case of only 1 Director and member, then only this member needs to draft and sign the special resolution for it to become effective;
Proxy Voting
It may be possible to cast votes without being present at the meeting. This is voting by proxy. However, proxy voting must be enabled by the company’s constitution.
For example, John is a member of the company, Ark Pty Ltd. The Directors of Ark inform John that a meeting to pass a special resolution is being held in 21 days. John is on holidays and cannot make it back in time. However, he still wants to vote. John informs the Chairperson of the meeting to vote against the resolution. At the meeting, the Chairperson exercises their proxy power to vote on behalf of John.
Proxy voting is common for publicly listed companies, as it is usually impractical for shareholders to physically sit in.
When you cannot vote
A Director of a public company generally cannot vote on a resolution, if they have a material interest in that resolution. They can only vote in two situations. First, if they have ASIC’s permission under section 196 of the Corporations Act 2001 (Cth). Second, if the other Directors pass a resolution disclosing the Director’s material interest and affirming that this interest should not disqualify the Director from voting.
Directors of a proprietary company can vote on a resolution, even when they have a material interest in it, as long as they first disclose this interest to members.
If you need more guidance on resolutions, you should seek legal advice, as the rules can change depending on the type of company you are running.
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