Special Resolution Under the Companies Act 2013

Introduction

The board of directors is in charge of choosing a course of action and making decisions on behalf of the company in the commercial world. These choices, though, are more intricate than those we make regularly.

Choices made at this level have a great deal of influence on many people, their jobs, livelihoods, and financial security. The board of directors issues corporate resolutions to codify any major decisions formally. These special resolutions, which are written documents, officially certify and bind the board’s acts.

An Ordinary Resolution under the Companies Act 2013

According to Section 114(1) of the Companies Act 2013, A resolution is considered an ordinary resolution if the required notice under the Act has been properly given. The resolution is passed by a majority of votes cast in favor, whether by a show of hands, electronically, or through a poll, as applicable. 

This includes the Chairman’s casting vote, if any, and the votes of members entitled to vote, either in person or, where permitted, by proxy or postal ballot. The votes in favour must exceed those against the resolution.

Key considerations:

1. Ordinary resolutions are typically passed for routine business matters at the AGM, such as:
   • Adoption of financial statements
   • Declaration of dividends
   • Appointment of directors
   • Appointment and remuneration of auditors
2. For the resolution to pass, the votes in favour must outnumber those against, requiring a simple majority.
3. In compliance with the Companies Act 2013, all members must be notified of the meeting in advance.
4. The resolution is valid if at least 51% of the members consent.
5. Only the votes of eligible members will be counted.
6. In certain situations, a copy of the ordinary resolution must be filed with the Registrar after obtaining the necessary signatures.

A Special Resolution under the Companies Act 2013

According to Section 114(2) of the Companies Act 2013, a resolution is classified as a special resolution when the intention to propose it as a special resolution has been clearly stated in the notice calling the general meeting or in other communication provided to the members. The required notice under the Act has been properly given. 

The votes cast in favor of the resolution, whether by a show of hands, electronically, or through a poll, must be at least three times the number of votes cast against it by members entitled to vote, either in person, by proxy, or by postal ballot.

Key considerations:

1. Following the Companies Act 2013, the notice for the meeting must be served to all members in advance.
2. The notice provided to members before the meeting must specifically include the agenda item regarding the passage of a special resolution.
3. A supermajority is required to pass a special resolution at a General Meeting.
4. A supermajority means that at least 75 percent of the members must vote in favor of the resolution.
5. Only the votes of eligible members will be counted.
6. Some matters that require a special resolution include:
   • Amending the Articles of Association
   • Issuing sweat equity shares
   • Changing the company’s registered office
   • Reducing share capital
   • Removing an auditor before the end of the term
   • Buying back shares
   • Appointing more than 15 directors
   • Making loans and investments by the company.

Difference Between Ordinary and Special Resolution

Advantages of Special Resolutions

There are several benefits to using a special resolution for decision-making within a company or organization:

1. Protection for Minority Shareholders

Special resolutions require a higher threshold of votes in favour, offering more excellent protection for minority shareholders. This ensures that significant decisions are made with broader support from the membership or shareholders.

2. Greater Consensus

A special resolution requires a higher percentage of votes in favor to demonstrate a more substantial consensus among members or shareholders.

3. Increased Oversight

Passing a special resolution often involves more oversight and scrutiny, which can lead to better decision-making and financial management.

4. Greater Control 

Special resolutions give members or shareholders more control over major decisions, such as amendments to the company’s articles of incorporation or the sale of significant assets.

5. Transparency

A special resolution is documented in the meeting minutes as a formal decision, ensuring transparency and accountability.

6. Legal Requirement

Sometimes, the law mandates a special resolution for specific actions, such as changing the company’s name, increasing the authorized share capital, or amending the company’s articles of association.

Conclusion

Under the Companies Act 2013, resolutions are vital in formalizing corporate decisions. Ordinary resolutions handle routine matters with a simple majority, while special resolutions requiring a supermajority are reserved for significant actions. 

Special resolutions offer more excellent protection for minority shareholders, ensure broader consensus, and provide increased oversight and transparency in crucial decisions. These resolutions balance efficient business operations with safeguarding shareholder interests in critical corporate matters.

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