Definition
An extraordinary resolution was a formal decision-making process used in company management that required a 14-day notice and a supermajority (75%) vote of those participating in a general meeting to approve. This type of resolution was essential for significant corporate actions and decisions, such as altering the company’s structure or winding up operations.
Under the Companies Act 1985, certain critical company decisions could only be taken by extraordinary resolution. However, the necessity for such resolutions was abolished under the Companies Act 2006, although a company’s specific articles of association might still mandate them.
Examples
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Winding Up a Company: If a company decided to cease its operations, an extraordinary resolution was required. Once the shareholders received a 14-day notice, 75% of them needed to vote in favor of winding up for the resolution to pass.
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Changing the Company’s Name: A significant change like altering the company’s name often required an extraordinary resolution. Shareholders would be notified 14 days in advance, and a 75% supermajority vote was necessary to approve the name change.
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Amending the Articles of Association: Any substantive changes to a company’s governing documents, such as the articles of association, traditionally required an extraordinary resolution, involving at least 75% of the voting shareholders’ approval after a 14-day notice period.
Frequently Asked Questions (FAQs)
What is an extraordinary resolution?
An extraordinary resolution is a formal decision-making process within company management that historically required a 14-day notice and the approval of at least 75% of those voting at the general meeting.
What types of decisions required an extraordinary resolution under the Companies Act 1985?
Decisions such as winding up a company, changing the company’s name, or altering the articles of association required an extraordinary resolution under the Companies Act 1985.
How did the Companies Act 2006 change the use of extraordinary resolutions?
The Companies Act 2006 removed the requirement for extraordinary resolutions, simplifying the decision-making process for certain company matters.
Can a company’s articles of association still require extraordinary resolutions?
Yes, despite the Companies Act 2006 removing the statutory requirement, a company’s specific articles of association may still mandate the use of extraordinary resolutions.
What does a supermajority mean in the context of extraordinary resolutions?
A supermajority means that at least 75% of the voting shareholders need to approve the resolution for it to pass.
Related Terms
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Resolution: A formal decision taken at a general meeting of the company’s shareholders.
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Ordinary Resolution: A resolution passed by a simple majority (over 50%) of the shareholders’ votes cast at a general meeting.
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Special Resolution: A resolution that requires at least a 75% majority of votes cast by shareholders in favor for it to pass, often associated with major decisions.
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General Meeting: Meetings of the shareholders of a company, which can be scheduled regularly (Annual General Meeting, AGM) or held as special sessions (Extraordinary General Meeting, EGM).
Online References and Resources
- Companies Act 1985 - Historical document detailing earlier statutory requirements.
- Companies Act 2006 - Current legislation governing company law in the UK.
- Corporate Governance: UK Financial Reporting Council - Additional resources on corporate governance standards.
Suggested Books for Further Studies
- Company Law by Alan Dignam and John Lowry: Insights into modern company law principles, including changes from historical practices.
- Gower and Davies’ Principles of Modern Company Law by Paul L. Davies and Sarah Worthington: Comprehensive guide to contemporary company law, UK statutory frameworks, and governance practices.
- British Company Law and Corporate Governance by John Armour: Detailed analysis of company law reforms and governance mechanisms in the UK business context.
Accounting Basics: “Extraordinary Resolution” Fundamentals Quiz
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