In general, there are 2 bodies of persons who exercise the most influence on a company – directors and shareholders.
Quite unlike the board of directors however, shareholders do not exercise management powers.
That being said, as owners/investors of the company – shareholders are granted the right to make various significant decisions, and this highlights their powers of ownership in the company.
These decision can entail matters ranging from corporate governance, procedures, company policies and/or issues of social or environmental concerns.
Where a valid resolution is passed by the requisite majority – this resolution would be binding on the company, its directors and all shareholders.
In this article, we seek to provide you with a list of the most common shareholder resolutions that you’re likely to encounter in a company.
It is important for Start Up owners to be able to distinguish the different roles that both parties play.
This will propel Start Up owners into a situation of control as they are kept aware of the respective rights and obligations that exist between the relevant roles.
Resolution 1: Appointment of a New Director
While shareholders may own a portion of the company, important management decisions are mostly reserved for the directors.
However, a key decision power given to shareholders is the discretion to appoint the directors, which extends to the possibility of permitted self-appointment.
Generally, a new director may be appointed in the following circumstances:
● resignation/retirement of an existing director;
● following the removal of a director who has been deemed incompetent;
● following the removal of director who has breached his contract in any way.
As directors owe fiduciary duties to the company (i.e. to act in its best interests), this is a crucial mechanism that can be exercised by shareholders to safeguard their ownership interests.
Resolution 2: Determining the directors’ remuneration
The shareholders’ right to appoint directors would logically extend to their right to determine the directors’ remuneration.
However, a potential pitfall arises where shareholders appoint themselves as directors. A common grievance is the excessive remuneration of persons who occupy both positions.
In this regard, good practice safeguards can help circumvent the potential likelihood of disputes arising as a result of unfair prejudice concerns. They include:
● bearing fiduciary duties in mind;
● considering the value of director services provided;
● being transparent;
● documenting decision making (through the use of resolutions); and
● applying objective commercial criteria.
Resolution 3: Removal of a Director
Generally, the right to hire is concurrent with the right to “fire”.
Just as shareholders reserve the right to appoint a director, they also retain the right to remove a director.
This can be effected by way of a resolution where no such guidance is provided for in the company’s constitutional documents.
Some factors to consider in removing a director could include:
● breach of director’s statutory and fiduciary duties; and
● poor performance and conduct.
Resolution 4: Appointment of Auditors
This is a power shared by both directors and shareholders. As a result, it is often common to see it being reflected as a matter to be decided by way of a board resolution or and/or shareholders’ resolution.
As companies are generally required to appoint auditors, the appointment or change of the company auditors is a common matter that must be dealt with.
A shareholders’ resolution documenting the appointment of auditors can then be utilised to mark the officiality of a mutually agreed upon and newly appointed auditor.
Some vital points for a resolution reflecting the change in auditors include:
● details of the company;
● name of the existing auditors;
● name of the new auditors;
● names of the shareholders passing the resolution; and
● date of passing the resolution.
Resolution 5: Altering the company's articles
Think of the company’s articles as the defining rules and guidelines of the company.
As the nature of importance of each article is clearly undeniable, any proposed amendments have to be determined and voted on by the shareholders.
Where a general meeting has been convened to make alterations to the company’s articles, a resolution should be passed and documented.
As the owner of a new start-up, it might be useful to know that the requirement to host a physical meeting is not a necessity for private companies, with relatively few shareholders.
Resolutions can be made out in writing and then sent across to all shareholders entitled to vote – rendering it a more convenient process as shareholders need not meet in person.
Resolution 6: Altering rights attached to shares
The alteration of share rights can often affect a whole range of shareholder entitlements, ranging from shareholder’s’ voting rights to their rights to dividends or capital on dissolution…
Given the potential impact of such changes, any amendments made must be officially authorised, agreed upon and reflected through the passing of a resolution.
Resolution 7: Authorising directors to allot and issue shares
While directors have the bulk of the decision-making powers in the day-to-day management of a company’s affairs, the power to authorise allotment and issue of shares rests in the owners – i.e. the shareholders.
As the further issuance of shares can dilute the percentage of share ownership amongst the current shareholders, this is an issue that must be addressed through the approval and agreement of the shareholders.
In that vein, a shareholder’s resolution indicating their acquiescence to the directors undertaking such an action should be set out.
Resolution 8: Authorising directors to allot and issue shares
Perhaps your company’s name of “Bottles” isn’t sufficiently indicative enough of your business which sells wine from the valley, and patrons often confuse you with a bottle recycling company…
A name change can be a useful choice to help render your company more marketable within your industry.
While this is well and good, it is important to remember – as a major business decision – such alterations must be validly approved by shareholders and effected by way of a shareholders’ resolution, given that the name of your company is vital to your brand identity.
Resolution 9: Changing the Company’s Status by Registration
In the instance where your company is performing really well and expansion is on the cards, the thought of going public may have found its way into your mind.
Companies list as a public company for a variety of purposes, including:
● to enable the company to raise funding for its development;
● to enhance the company’s status with its customers and suppliers; and
● to place a market value on the company.
As any alterations made to the company’s registration status can pertinently affect its rights and obligations, such a decision must be effected by passage of a shareholders’ resolution.
Resolution 10: Changing the Company’s Status by Registration
When a company does poorly and its balance sheet sees more “red” than “green”, it is clear that shareholders would be at risk of suffering severe financial losses.
As such, shareholders are entitled to trigger a voluntary dissolution to avoid the adverse effects of bankruptcy where a company is approaching the brink of insolvency.
Introducing GLS Total Start-Up Support
We hope that we have established the central purpose of the shareholder’s’ resolution as an important document that records your shareholder’s’ approval of your company’s decision to do X, Y or Z.
All that being said, having a well-crafted shareholders’ resolution not only serves as a concrete record but also safeguards your interest where matters of compliance arise.
While there are plenty of precedents available online – they are often generic and untailored to your precise needs.
If you’ll like to ensure that your corporate house-keeping matters are kept in good order and to avoid problematic situations that could potentially arise from poorly written documentation, GLS offers a Total Start-Up Support solution which provides you with all business-critical templates(including shareholders' resolutions) for the price of what most pay for coffee each month.
Needless to say, our solution comes with a 24/7/365 helpline whereby one of our legal professionals can assist you with any queries that you may have.
If you liked this topic, you might also like 10 Most Common Director Resolutions.
*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.