Special resolution means a resolution that needs a clear majority to approve the resolution at the general meeting. It is a resolution of the company’s shareholders which requires at least 75% of the votes cast by shareholders in favor of it in order to pass. It’s important to use the right type of resolution. Things like a Change of Constitution or Name, Large Capital Investment, or changing the share structure of a business would require a special resolution. If you use an ordinary resolution where a special resolution is required or don’t follow the correct procedure, the resolution could be invalid.
The special resolution system is the best way to help protect those shareholders that hold minority shares. The need for a special resolution may help good decision-making, ensuring important changes are better considered and an effort made to gain wider support than a simple majority.
The special resolution regime helps to protect minority shareholders against important decisions being taken without proper consideration and, to the extent possible, consensus. This system is the best way to help protect those shareholders that hold minority shares. The word “resolution” is not defined in the Companies Act 1994. Usually, in terms of company law, a resolution means the formal decision of a body which has been taken in a meeting after proper deliberations. Section 87(2) of the Companies Act 1994 provides that 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 has been given to the members of the resolution;
- The notice required under this Act has been duly given for the General Meeting, and
- The votes cast in favor of the resolution by the members in person or by proxy are not less than three times the number of votes, if any, cast against the resolution. The Articles of Association may also provide that certain types of business shall be approved by a special resolution.
The need for a special resolution may help good decision-making, ensuring important changes are better considered and an effort made to gain wider support than a simple majority. Generally in the following cases, a special resolution is required –
- Change of the registered office from one state to another and change of object Clause of the Memorandum of Association.
- Change of the name clause of the Memorandum of Association.
- Alteration in the Articles of Association.
- Creation of Reserve Capital.
- Reduction of Capital.
- Removal of registered office from one place to another place in the same state.
- Payment of interest out of the capital to the shareholders.
- Appointment of inspectors to investigate the company’s affairs.
- Fixation of Directors’ remuneration, if the articles provide so and sanctioning of remuneration to a director on the basis of percentage of profit.
- Permission to the director to hold any office of profit under the company.
- For making the liability of directors unlimited.
- Making loans to other companies under the same management.
- Voluntary liquidation of a Company.