Ordinary Resolution

An ordinary resolution is a standard resolution that can be passed with a simple majority vote of more than 50% of company members either in person or by proxy. It is typically used when no specific type of resolution is required by the Companies Act 2006 or the company's articles of association.

Definition

An ordinary resolution is a type of resolution that can be passed with a simple majority (more than 50%) of votes by company members, either voting in person or via proxy. It is commonly used in company meetings to approve standard business decisions, such as the appointment of directors, approval of financial statements, or routine business matters. No special notice is required to propose an ordinary resolution unless otherwise stated in the company’s articles of association or other governing documents.

Examples

  1. Annual Approval of Financial Statements: Company shareholders may pass an ordinary resolution during the annual general meeting (AGM) to approve the company’s financial statements for the previous fiscal year.

  2. Appointment of Directors: The election of a new member to the board of directors can be carried out through an ordinary resolution, requiring a simple majority vote.

  3. Dividends Declaration: Some companies may use an ordinary resolution to declare interim dividends, although final dividends often require a special resolution.

Frequently Asked Questions (FAQs)

What constitutes an ordinary resolution?

An ordinary resolution is any resolution that requires a simple majority (more than 50%) of votes cast by the members of a company to pass.

What is the difference between an ordinary resolution and a special resolution?

An ordinary resolution requires a simple majority to pass, while a special resolution requires at least 75% of the vote. Special resolutions often involve more significant changes, such as altering the company’s articles of association or approving major transactions.

When is an ordinary resolution appropriate?

An ordinary resolution is appropriate for routine business matters that do not require a higher level of approval, such as the appointment of officers, approval of normal financial practices, or day-to-day business decisions.

Do ordinary resolutions require notice to shareholders?

Generally, no specific notice is required unless stipulated by the company’s articles of association or other regulations. However, for transparency and good governance, it’s often good practice to provide notice.

Can an ordinary resolution be passed in a proxy meeting?

Yes, an ordinary resolution can be passed by members voting through a proxy, as long as the proxy votes reflect a simple majority.

Extraordinary Resolution: A type of resolution that requires a higher threshold than an ordinary resolution, often around 75%, but less than a special resolution.

Special Resolution: Requires at least 75% approval of the votes cast by members and is typically used for more significant changes, such as amendments to the articles of association.

Companies Act 2006: A comprehensive piece of legislation that sets out the law on company formation, governance, and compliance in the UK.

Articles of Association: The document that specifies the regulations for a company’s operations and defines the company’s purpose.

Online References

  1. GOV.UK - Types of Resolutions
  2. Companies Act 2006 Overview
  3. UK Corporate Governance Code

Suggested Books for Further Studies

  1. “Company Law” by Alan Dignam and John Lowry - Offers a comprehensive overview of company law in the UK.
  2. “Gower: Principles of Modern Company Law” by Paul L. Davies - A foundational text for deepening understanding of company law principles.
  3. “Mayson, French & Ryan on Company Law” by Derek French, Stephen Mayson, and Christopher Ryan - A trusted source for detailed, practical insights into company law.

Accounting Basics: “Ordinary Resolution” Fundamentals Quiz

### What is required to pass an ordinary resolution? - [x] A simple majority of more than 50% - [ ] At least 75% approval - [ ] A unanimous vote - [ ] No voting required > **Explanation:** An ordinary resolution requires a simple majority vote of more than 50% to pass. ### Do ordinary resolutions typically require special notice to be given to shareholders? - [ ] Yes, always - [x] No, usually not required - [ ] Only for major decisions - [ ] Only in extraordinary meetings > **Explanation:** No special notice is usually required for ordinary resolutions unless specified by the company’s articles of association or regulations. ### In what setting is an ordinary resolution most commonly used? - [x] Routine business decisions in company meetings - [ ] Major corporate transactions - [ ] Legal disputes - [ ] None of the above > **Explanation:** Ordinary resolutions are most commonly used for routine business decisions in company meetings. ### Which type of resolution requires at least 75% approval? - [ ] Ordinary resolution - [ ] Interim resolution - [ ] Extraordinary resolution - [x] Special resolution > **Explanation:** Special resolutions require at least 75% approval of the votes cast. ### Can members voting by proxy pass an ordinary resolution? - [x] Yes - [ ] No - [ ] Only if the proxy is approved by the board - [ ] Only under special circumstances > **Explanation:** Members voting by proxy can pass an ordinary resolution, provided the required simple majority is achieved. ### What document might specify conditions altering the notice requirements for ordinary resolutions? - [ ] Board's policy handbook - [x] Articles of Association - [ ] Annual financial reports - [ ] Secretary of State's directive > **Explanation:** The company's Articles of Association may specify conditions that alter the notice requirements for ordinary resolutions. ### When is a special resolution required over an ordinary resolution? - [x] For significant changes such as amending the articles - [ ] For routine financial decisions - [ ] For electing directors - [ ] For approving financial statements > **Explanation:** A special resolution is required for significant changes such as amending the articles of association. ### Are ordinary resolutions valid if they achieve exactly 50% of the votes? - [ ] Yes - [x] No - [ ] Only if the chairman approves - [ ] Only in emergency cases > **Explanation:** Ordinary resolutions require more than 50%, so exactly 50% does not suffice. ### What percentage of votes typically supports an extraordinary resolution? - [ ] More than 50% - [ ] 75% - [x] Higher than simple majority but varying by context - [ ] 100% > **Explanation:** An extraordinary resolution usually requires higher support than a simple majority but less than a special resolution; this percentage can vary by context. ### Can ordinary resolutions be used for declaring final dividends? - [ ] Always - [x] No, usually special resolutions are used - [ ] Yes, if it's the chairman's prerogative - [ ] Yes, irrespective of quantity > **Explanation:** Final dividends usually require a special resolution, although interim dividends may use an ordinary resolution.

Thank you for your time and effort exploring the fundamentals of ordinary resolutions. Keep honing your knowledge of corporate governance and company law. Happy learning!


Tuesday, August 6, 2024

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