For key company decisions, a company often needs to seek the approval of its board of directors or shareholders. A company resolution is formal approval of certain decisions made by the board or company shareholders who are entitled to vote on the matter at hand. While you can approve resolutions at in-person meetings (and record them in the minutes), a company will often prepare resolutions in writing and sign them outside of meetings. This will depend on the subject matter and the urgency of obtaining approval. It is important that your company passes any resolutions in accordance with the law, the company's constitution, and its shareholders agreement. This article explains what a company resolution is and the formalities involved in passing one.

Board Resolutions

A board resolution is a decision put to the board of directors of a company for approval. As directors are responsible for leading and overseeing the business and management team, board resolutions are necessary as a formal record of the board's key decisions.

Often, a company can pass board resolutions by a simple majority. Though, sometimes, the company's constitution or shareholders agreement can require that certain key decisions need the approval of 75% of directors. Another requirement may be that a certain director (for example, a founder-appointed director or investor-appointed director) approve the decision within a simple majority to pass the resolution.

Examples of decisions that require board approval could include:

  • changing the name of a company;
  • approving the company's entry into a key contract;
  • authorising the company to borrow or lend money; or
  • authorising a company dividend.

Shareholder Resolutions

Shareholder resolutions are decisions put to the shareholders of a company for approval. Normally, shareholders will have one vote for each share held in the company. Typically, only critical company matters will go to the shareholders for approval.

Matters that need shareholder approval are mandated by the Companies Act and the company's constitution and shareholders agreement.

Examples of matters requiring shareholder approval are:

  • a company's decision to enter into a major transaction;
  • issuing new shares in a company to a new shareholder or investor;
  • adopting a company constitution;
  • changing the rights attached to shares in the company; or
  • authorising an exit event.

Approvals and Formalities

A company's shareholders agreement and constitution may specify a certain approval percentage necessary for passing a decision. Typically, however, a company seeks to achieve unanimous approval.

At the board level, each individual director has duties to ensure responsible decision-making in the company's best interests. Having a formal resolution in writing allows a company to record the considerations of the board and the outcome of their decision.

At the shareholder level, if certain shareholder resolutions do not achieve unanimous approval, this might trigger minority shareholder buy-out rights. Consequently, it allows the dissenting shareholder to require the company to buy back their shares.

Why Are Company Resolutions Important?

Company resolutions are an important tool for minimising the company's risk and ensuring adequate record-keeping. They also provide a formal record of the appropriate approvals the company obtains as necessary under the Companies Act, shareholders agreement or company constitution.

If there is no written record of decisions being made, this can lead to considerable uncertainty for a company. For instance, there might be confusion about:

  • what decision was made; and
  • whether the board or shareholders had agreed to the decision at the time.

Additionally, regulators such as Inland Revenue or other corporate or government officers might wish to investigate the company's affairs. Accordingly, records of the company's resolutions may be a starting point for justifying why the company undertook a certain course of action.

A legal team can assist you in preparing template resolutions that you can use for regular decision-making by the company. They can also advise when you need formal resolutions and the necessary approval threshold for those resolutions.

Key Takeaways

Company resolutions are formal approvals for certain key company decisions. You can pass resolutions at the board or shareholder level, depending on the subject matter of the decision and the requirements of the company's constitution and shareholders agreement. It is important that company resolutions are used for record-keeping and evidence of company decisions having been passed lawfully.