Resolutions in Business | Types | Ordinary vs Special Resolutions

What is a Resolution in Business?

The items of business that are transacted at a general meeting are presented in the form of motions. These motions are taken up for discussion and decision. If the motion is approved by the required majority of members present, it becomes a resolution. A resolution represents the collective approval for an item that was taken up for discussion and decision in a meeting.

Resolution - types, differences
Image: What is resolution?, Types, Differences between Ordinary and Special resolutions

Types of Resolutions

Under the Companies Act, 1956, there are three types of resolutions. They are:

  1. Ordinary Resolution
  2. Special Resolution and
  3. Resolutions requiring special notice.

1. Ordinary Resolution

The resolutions which are passed at a general meeting by a simple majority are called ordinary resolutions . In other words an ordinary resolution is one where the votes cast for the resolution is more than the votes cast against the resolution.

The votes can be cast by members or by proxy. The resolution can be passed either by show of hand or by poll.

Matters decided

The following matters can be decided by an ordinary resolution:

  1. Adoption of statutory report.
  2. Appointment of first directors who are liable to retire by rotation.
  3. Appointment of auditors and fixation of their remuneration.
  4. Appointment of a managing director.
  5. Removal of a director and appointment of a director in his place.
  6. Approval of final accounts.
  7. Adoption of directors report.
  8. Election of directors.
  9. Issue of shares at a discount subject to sanction of the Company Law Board.
  10. Alteration of share capital.
  11. Creation of reserve fund etc.

2. Special Resolution

A special resolution is one which requires at least 3/4th majority of the members voting on it at the General Meeting. The voting can be by a show of hands or by poll.

A notice has to be given at least 21 days before the meeting in which a special resolution is passed. The notice must clearly state the resolution to be moved is a special resolution.

The object of requiring a 3/4 th majority is to ensure that the interests of the minority shareholders are protected.

Purpose of Special resolutions

Special resolution is required to be passed for the following purposes:

  1. Alteration of a company’s name.
  2. Alteration of the objects clause in the Memorandum of Association.
  3. Alteration of the articles of the company.
  4. Conversion of any portion of the uncalled capital into reserve capital.
  5. Reduction of share capital.
  6. Variation of shareholders rights.
  7. Change of registered office from one state to another state.
  8. Payment of interest out of capital.
  9. Making the liability of directors unlimited.
  10. Voluntary winding up.

Resolution Requiring Special Notice

This type of resolution was introduced by the Companies Act 1956. Notice of the intention to move such a resolution should be given to the company at least 14 days before the meeting at which the resolution is to be moved. The company should give 7 days notice to the members.

Following are the resolutions that require special notice:

  1. Resolution to remove a director.
  2. Resolution to appoint an auditor other than the retiring auditor.
  3. Resolution to remove a director.
  4. Resolution to appoint a director in place of one who is removed.
  5. Resolution that the retiring auditor should not be reappointed.

Distinction between ordinary and special resolution

The above table differentiates Special and Ordinary Resolutions.