AS THE COMPANY PLEASES…

A limited company (either public or private)’s grundnorm are its Memorandum of Association and Articles of Association.

The Memorandum of Association contains basic information about the company such as name, authorised share capital, objectives of the company etc. The Articles of Association on the other hand provide for the internal workings/mechanism of the company e.g. how directors are to be appointed, removed, their term of duration, how the Articles can be alternated etc.

In other words, the Memorandum and Articles of Association are key on how the company operates and is administered.

As a juristic being, the Company can only make or take its decisions through the actions of the management of the company. Its management is constituted by the directors (known as the mind of the company) or/and the shareholders (owners of the company).

Such decisions taken on behalf of the company as a juristic entity is validated when channeled as a Resolution.

 

What is a Resolution?

According to the Black’s law dictionary, a Resolution is defined as “a formal action by a corporate Board of directors or other corporate body authorising a particular act, transaction, or appointment.”

A Resolution is a written statement created by either the Board of directors or shareholders of a company detailing a binding decision or action at a meeting. For example, a Shareholders’ Resolution is a Resolution by shareholders usually passed to ratify the actions of the Board of directors (Board).

When passed, Resolutions form part of the minutes of the meeting at which they were passed.

The Board being the decision making arm of the company is charged with the responsibility of ensuring that Resolutions passed by either the shareholders or the Board are executed.

Decisions that require Resolution are those decisions which are beyond the normal day-to-day running of the company, as such decisions will affect the Constitution and Rules of the company i.e. the Memorandum and Articles of Association.

Form of a Resolution.

Resolutions could either be proposed for passage in written form or communicated verbally at a physical meeting.

Where it is proposed and passed at a meeting, it is required that such be accurately recorded in the minutes of the meeting. This serves as evidence of the proceedings and the actions and decisions taken at such a meeting. Thereafter, a written notification informing the owners of the company (shareholders) of any Resolution so passed must be dispatched.

As a requirement of the law, public companies are to pass their Resolutions at physical meetings convened for such a purpose. The private companies on the other hand can elect to pass their Resolutions either through written exchanges or physical meetings.

Requirements for passing a Resolution.

These are:

  1. Passing the Resolution at a meeting that has been properly convened and fulfils the quorum requirement.
  2. Entering the Resolution in the books kept by the company within one month of the meeting being held.
  3. The chairman must sign the record of the minutes of the meeting.
  4. The company’s minute book must be kept at the company’s registered office or principal place of business.

If any of the above requirement is not carried out, the Resolution may be invalidated.

 

Procedure for the passage of a Resolution.

Resolutions are normally proposed and seconded before they are put to vote. Where a Resolution has been proposed and seconded but not put to vote at the meeting but is rather merely declared to have been so passed by the Chairman, such an act invalidates such Resolution.

A proposed Resolution can be amended. Such amendment can take the form of an omission, an insertion, a substitution or the alteration of the position of words or phrases in the original motion. The amendment must be voted on first. In the absence of this, any Resolution passed subsequently will not be binding.

Types of Resolutions.

There are two (2) types of Resolution. Ordinary Resolution and Special Resolution.

Ordinary Resolution refers to decisions which simply requires a majority of the shareholders or directors to agree or disagree upon S. 233(1) Companies and Allied Matters Act (CAMA) 1990. They are passed with a show of hands at the meeting or in writing (private companies). Example of such decisions are appointment or removal of directors, appointment of the members of the audit committee, etc. See S. 214 CAMA.

The Special Resolution on the other-hand is also called an “Extraordinary Resolution”.

It is employed for matters considered to be very important to the life of the Company. For it to be passed, it requires the consent of at least 75% of the shareholders or directors present at the meeting. It equally must have been backed by a pre-notice duration of twenty-one (21) days prior to the meeting to be convened for its proposition and passage S. 233(2) CAMA.

Improper Resolution

CAMA provides instances where the Board is to carry out its functions by an Ordinary Resolution or by Special Resolution. A business of the Board would be invalid if it passes by Ordinary Resolution any corporate decision(s) which requires a Special Resolution and vice versa.

CAMA at Section 233(6) equally allows a company to take decisions or handle matters by Ordinary Resolution where the Act does not specifically provide that such is to be done by Special Resolution. To take advantage of this provision, such a variation must be clearly provided for in the Articles of Association of the company.

Company decisions or business that must be specifically passed by Special Resolution are:

  1. Alteration of the Memorandum of Association S. 46(1) CAMA
  2. Alteration of the Articles of Association S. 48(1)
  3. Changing the name of the company S. 31(1)
  4. Reduction in authorized share capital S. 106(1)
  5. Making liability of directors unlimited S. 289
  6. Resolution that the company be wound up by the court S. 408(a)
  7. Resolution that the company be wound up voluntarily S. 457(b)
  8. Authorizing the liquidator on the sale of undertaking of company to receive shares, policies, or similar interests as consideration for distribution among members S. 538
  9. Re-registration of unlimited company as company limited by shares S. 52(1)
  10. Re-registration of a company limited by shares as unlimited company Ss. 51(5) & 46(1)
  11. Re-registration of private company as public company S. 50(1)
  12. Re-registration of public company as a private company S. 53(1)
  13. A Resolution for a scheme proposed for a compromise, arrangement or reconstruction of merger between it and another company S. 539
  14. A Resolution by the company to pay interest on equity capital raised to defray the expenses of certain infrastructure projects which cannot be made profitable for a long period S. 113
  15. A Resolution to determine that any portion of the company’s share capital which has not been already called up shall not be capable of being called up except in the event and for the purposes of the company being wound up S. 134
  16. A Resolution of the holders of a class of shares to vary the rights attached to that class of shares S. 141
  17. A Resolution to alter remuneration of directors fixed by articles of association S. 267
  18. In a member’s voluntary winding up, a Resolution, on or after the appointment of a liquidator, that the accounts of the company shall not be and it’s prior to it’s being laid before the general meeting S. 470(6)
  19. In a member’s voluntary winding up a Resolution to authorize the liquidator to pay any classes of creditors in full; to make any compromise or arrangement with creditors; to compromise all calls, and liabilities to calls, debts and liabilities S. 481.

 

Conclusion.

It can be seen that a company makes and takes decisions through the passage of Resolutions. It is can either be exercised by the shareholders at a general or extraordinary meeting or by the directors at a Board meeting.

The Articles of Association of a company provides for matters which can be passed by either Ordinary or Special Resolution.

Note

This article was put together by Ramatu Ibrahim, Esq. of Hermon Law.

You can contact her using ramatu@hermonlaw.com