Concept of Resolution under Companies Act 2013

Resolution is a decision or agreement mane by the directors and shareholders of the company. When a resolution is proposed it is called motion. After passing a resolution company is bound to act according to it.A resolution is a formal way in which a company can note decisions that are made at a meeting of company members.
 A resolution is a firm decision for doing an act. There are two types of resolution under the Companies Act.

  • Ordinary Resolution
  • Special Resolution
Concept of Resolution under Companies Act 2013

COMPANY RESOLUTION

the Company form of business includes- Artificial person bearing a separate legal identity. Being an artificial person, the decisions of the Company are its own and the same are passed in the form of Resolutions. Primarily resolutions are formal document that crystallize in writing, important decisions of the Company or Board for that matter. Resolutions are broadly classified as: Resolutions passed by the Board Resolutions passed by the Members Board resolutions are formal documents relating to the decisions passed at a Board Meeting. The statutory provisions relating to Board resolutions are Section 179 of the Companies Act, 2013 and Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI). A resolution is a formal way in which a company can note decisions that are made at a meeting of company members.

Types of resolution under the Companies Act.

Ordinary Resolution

The Companies Act, under section 114 talks about ordinary resolution. In an ordinary resolution, the votes are cast by show of hands/ electronically/ by polling system in favor of the resolution. The concept of ordinary resolution under the Companies Act, 2013 is a majority vote-based resolution. Only eligible members can cast their votes in ordinary resolution. Therefore, a member who abstains or is prohibited to vote shall not be counted.

The votes cast in favor of the ordinary resolution must exceed the votes cast against it. There should be a simple majority in favor of the motion allowing the resolution to pass. Notice should be served to all the members in advance. Additionally, there should be a consent of at least 51% of the member. A copy of the ordinary resolution should be filed with the ROC once the signatures are given.

It is a formal written document, binding on the company. Ordinary resolutions are similar to polling systems, where the members cast their votes simply in the form of yes or no. In a small company, it is generally done by show of hands. The directors can participate in person or by any audio or video conferencing. The notice for the meeting in writing should be served in not less than 7 days. It should be sent to the registered address of the director.

Ordinary Resolution Matters

  • If the matter deals with alteration in authorized capital.
  • Deals with the change of name of the company.
  • Alteration of MOA under section 61.
  • If there is a declaration of dividend.
  • If the matter revolves around the appointment of auditors and the fixation of remuneration.
  • Under section 65 of the Companies Act, the unlimited company to provide for reserve share capital on conversion into a limited company
  • Matter dealing with the appointment of an alternate director under section 161 or appointment of managing director, whole-time director subject to section 196 and 197, and removal of director before the expiry of the term under section 169.
  • If the matter is about the restricted non-cash transactions then an ordinary resolution is made.

Special Resolution

Special resolutions are also known as “Extraordinary Resolutions”. These resolutions are more useful to take some more serious and important decisions of the company. All the special resolutions that are to be passed in the meeting should be prior mentioned in the notice of the meeting. The process is as same as of the ordinary resolution, but the difference is that, these requires at least 75% of the votes in favour to win and sometimes as much as 95%.

Pre-requisites before passing a special resolution

  • Notice should be given of the intention to have a special resolution specifically mentioning the main agenda of passing the special resolution.
  • The votes casted in favor of the resolution should not exceed 3 times the total vote casted against the resolution. A special resolution is adopted only with 75% of the valid votes. That means 75% of the members should be voting in the favour of the resolution.
  • Voting in special resolution can be done by the display of hands, electronic, or any other permissible voting mode.
  • The number of votes of the entitled and voting representatives should be counted.

Matter where a special resolution is taken

  • If the matter deals with the alteration of AOA while converting from a private limited company to a public limited and vice-versa.
  • If there is a change in the registered office under section 12.
  • For alteration in MOA and AOA under sections 13 and 14.
  • For issuance of global depository receipt in any foreign country under section 41.
  • Issue of sweat equity shares under section 54.
  • If there is an issue of shares to the employees of the company under section 62.
  • When there is a reduction of share capital in section 66.
  • If there is buy-back of shares in section 68.
  • If the matter is about the issuance of debentures convertible into shares either wholly or partly.
  • Section 149(1) appointment of more than 15 directors and when there is re-appointment of independent director for a further period of 5 years.
  • If the matter relates to loans and investments under section 186.
  • If the issue is regarding the payment of remuneration to directors.

Key Difference between Ordinary Resolution and Special Resolution

  • An ordinary resolution needs a simple majority for moving forward with the resolution, whereas in a special resolution one needs a clear majority.
  • It is mandatory for the companies to submit a copy of the ordinary resolution with the Registrar. In case of a special resolution, a printed copy of the special resolution is sent to the Registrar within 30 days.
  • An ordinary resolution is complete on approval of 51% of the members and a special resolution requires 75% support.

Important points mentioned in Resolutions

The resolution should always mention the number of meetings, the name of the company, the date, time, and the financial year of the meeting. It should also mention the place of the meeting and specify whether it is a board or general meeting.

The resolution has to be signed by the board of directors/secretary of the company. Details of the board of directors or the secretary should be mentioned. The recording of the resolution should be in the board meeting minutes book of the company.

Process of passing the resolutions

Resolutions are proposed as motions, a motion becomes a resolution under the Companies Act, 2013 after the majority of members have adopted it. Resolutions are introduced by one member and seconded by others. This motion is in writing and signed by the mover. If there is a company meeting, only such motion is proposed which are covered by the agenda. However, in some cases, certain motions may arise out of the discussions and it may be allowed where no special resolution is needed in the Act. The motion under the consideration can be amended during the course of discussion.

Amendments can be proposed by any member who has not spoken on the main motion or has not previously moved an amended one. If a motion has a large number of amendments, then after obtaining the consent, a new motion is passed incorporating all the amendments. The chairman is having the absolute discretion to accept or reject the amendments. After the amendment is discussed, then it is put to vote. If the amendment is put forth, it is incorporated in the main motion. The altered motion is put before the meeting.

The company has to submit form MGT-14 with the ROC within 30 days of special resolution. It should be attached with a copy of the resolution passed, an explanatory statement given under section 102 of the Companies Act, and a copy of the AOA and MOA( if any change is done).

FAQs

Q: Can an Ordinary Resolution be Passed on Short Notice?

No, Ordinary resolutions demand a minimum notice period, and cutting corners here is a one-way ticket to legal turbulence.

Q: Can a Special Resolution be Passed Without Unanimous Consent?

Special resolutions require a special majority, not unanimous consent. It’s more like a democratic decision where a significant majority supports the resolution for it to pass.

Q: Is a Special Resolution Necessary for Everyday Decisions?

Absolutely not! Special resolutions are like the Avengers – summoned for major battles. Ordinary resolutions handle the day-to-day skirmishes.

Q: Are Resolutions Cast in Stone, or Can They be Amended?

Flexibility is the name of the game. While resolutions are crucial, they can be amended or withdrawn, provided the process is followed diligently.