How to take formal and informal decisions after starting a company in England as regulated in Companies Act?


Members play a key role at the time of founding a company in UK. After the formation of the company, they play an equally important role in the growth and establishment of a company. They are allowed to take specific decisions and decisions can be made via voting. The voting may be done in different manners. This articles throws some light upon how the decisions can be taken by members after starting a company in England.

Members taking Decisions Formally

The members are given special rights of taking some specific decisions. The question that arises at this point is that, how do they take decisions? A general answer will be via a “General Meeting”. However, the procedure of taking decisions must not be limited to a general meeting. Formal decision making is done mostly via general meetings.

Meetings

Over hundred years ago, it was a common assumption in the legislation that the decisions could only be taken by the members via meetings that may be classified as “general meetings” in case when all the members are authorised to attend that meeting, and as “class meetings” if only a particular class is allowed to show up in the meeting. As per Section 281 of Companies Act 2006, this way of taking decisions still preferably applies on public companies.

Annual General Meetings as per Companies Act 1985

After founding a company in UK it is mandatory for the companies to hold annual general meetings that discuss the progress and other matters of the company. Some specific general meetings may be held yearly. In Section 366 of Companies Act 1985, the definition of annual general meetings is provided. This section states that:

  • Each company is authorised to hold a general meeting on a yearly basis after its incorporation along with certain other meetings that may be held. The meetings shall be mentioned in the notices that call for those meetings.
  • As far as a company holds the first annual meeting within first 18 months of its formation, it is allowed to not hold a meeting in the same year of its formation and the next.
  • If the rules given in this section are not followed in the arrangement of a meeting by a company, the company along with its every officer will have to pay some fine.

How private companies do decision making?

As per the subsection 281 and subsections 288 to 300, it is allowed to the private companies that they can pass written resolutions for taking certain decisions. It is considered to be the normal mode of taking decisions in private companies. However, for the removal of directors or the removal of auditors, meetings should be arranged as per subsection 281(2), 168 and 510 of Companies Act 2006. Any resolution passed should be sent to the registrar who is also responsible for the company registration document UK.

Private Companies Written Resolutions as per Companies Act 1985

Practices differs in companies for decision making, like after register a ltd company with companies house the private companies prefer written resolutions, whereas public companies prefer decisions is meetings. Section 381 A, 381 B and 381 C state rulings regarding the written resolutions of private companies. Section 381 A states that:

  • Any action that has to be taken in a private company should be done:
  • By the passage of resolution in a general meeting of the company.
  • By the passage of a resolution by any class of the company in a meeting.
  • Or done by not arranging any meeting and without giving any notice in prior, and getting the written resolution signed by all the members or on their behalf, who would be authorised for attending and voting on that resolution at the date of resolution in a meeting.
  • It is not required to get the signatures on a single sheet. However, each signature should be on a separate sheet on which the terms and conditions are stated regarding the resolution.
  • The resolution’s date will be considered as the date when the last member or his/her representative signs the resolution.
  • A resolution in accordance with this section would become effective if it is passed by either of the following ways:
  • The company passes it in a general meeting.
  • Any class of the company relevant to the resolution passes it in a meeting.
  • If any meeting in which a resolution was passed or members who voted in support of that resolution are referred in any enactment, the reference will be interpreted accordingly.
  • Any reference given in enactment regarding the date of passage of resolution, when a resolution has been assented upon under this section, will be considered as the date of that resolution.
  • A resolution that would otherwise be needed to be passed as either a special or elective or extraordinary resolution, can be assented upon according to this section. If any enactment refers to special, elective or extraordinary resolution, the reference will include a such a resolution.
  • This section remains effective except in cases specified by the 1st part of Schedule 15 A. Moreover, for certain definitions given for resolutions under this section, the effectivity of their procedural requirements is in relation to the adaptations mentioned in 2nd part of the same schedule.

Section 381 B further states provisions regarding notifying the auditors about the resolution being proposed. It mentions that:

  • Any company’s director or secretary if:
  • Is informed about the proposal of a resolution that has to be assented upon under Section 381 A.
  • And is well acquainted about the conditions of the resolution.
  • Then, he has to make sure that if there are any auditors in the company, they are sent a copy of the resolution or are informed about the matter of the resolution either at the time when the resolution is given to the members for their signature or before that.
  • If any person fails to abide by the first provision of this section he will have to pay the fine.
  • If there are any proceedings held against any person who is accused of offending this section has to prove in defense that:
  • The situation was as such that he could not abide by the 1st provision of this section.
  • Or he had assumed on the basis of logical reasoning that the auditors had been sent the copy of the resolution or informed about the matter of the resolution via any other method.
  • The authenticity of a resolution cannot be affected by any provision of this section.

Section 381 C of Companies Act 1985 is the last section that specifies about the written resolutions for private companies. It mentions rulings about the supplementary provisions of written resolutions:

  • The 381 A and 381 B Sections remain effective in spite of any provisions given by the memorandum or the articles of the company. However, they show no prejudice over any authority that has been given by any such provision.
  • Any act or ruling given by law will remain unaffected by these sections if:
  • Actions are taken without passing the resolutions.
  • Or, in scenarios where the resolution is considered as passed or someone is not authorised to accuse that the passage of the resolution has not been done duly.

Informal Decision Making

Apart from the formal procedures of decision making, there is another mode of decision making known as Informal decision making. According to Section 281 (4) (a) of Companies Act 2006, informal decision making can take place in both, public and private companies. According to it, decisions can be taken by the unanimous approval of the members. They neither need to meet nor need to pass any written resolution to assent for the decision.

Types of Resolutions

There are two types of resolutions. When decisions are taken by a simple majority, which is not lesser than half of the total majority as per the subsections 281 (3) and 282 of Companies Act 2006. Each member is given the right one vote per share unless any other quota is mentioned by the articles, as specified by Section 284 of this Act.  When any such resolution is passed, it is termed as “Ordinary Resolution”.

The second type of resolution is “Special Resolution”. This resolution is applicable where the matters are riskier than regular matters of the company and members. The majority required for the passage of such resolutions is at least 75%, as mentioned in Section 283 of Companies Act 2006. Special resolutions may be used for either of the following matters:

  • Making amendments in the articles of the company, as mentioned in Section 21 (1) of Companies Act 2006.
  • Making the pre-emption rights of the members inapplicable upon the issuance of shares as stated in subsections 569-571.
  • When the share capital has to be reduced as mentioned in Section 641 (1).
  • Redemption of the shares belonging to the company, as specified by Section 716 (1).
  • Resolving the company to windup on a voluntary basis, as in Section 84 (1) of the Insolvency Act 1986 etc.

When the minority’s rights are in danger and there are chances that they may be treated unfairly, despite the passage of a special resolution the minority will be allowed to request a review of judiciary.

Voting as per Companies Act 1985

Section 374 of Companies Act 1985 states about the voting process that:

  • During any meeting of the company or any class’s meeting, a poll may be taken. If any member who has more than one share and hence authorised to more than one vote is allowed to use all his votes in different ways if he plans to vote. It is not required by him to use or cast all the votes in favour of same decision.

Voting via Poll or Show of Hands

There are certain provisions of the Companies Act 2006 that cannot be changed by the articles of the company. However, the articles can offer a larger majority or unanimity required for any particular decisions taken. The ordinary and special resolution are treated in a different manner on the basis of their passage via a written form of resolution or via a meeting, check subsections 282 and 283 of Companies Act 2006 for further information.  When any decision has to be passed by resolution in the written form, there is a required majority of the total members who can vote. Whereas for a decision taken in a meeting, an appropriate majority of the attendants of the meeting who can vote is required. This may be done either by a poll or by showing hands, whether personally, or through any proxy or before the meeting takes place. These rulings have been mentioned in Section 322A of Companies Act 2006. The results for voting via showing hands and poll may differ. A poll cannot be demanded by an individual alone, it should rather be a poll demanded by the members. It is mentioned in Section 321 (2) of Companies Act 2006 that, there is a minimum requirement for the members or their group to demand a poll successfully. This section is to be observed as long as the articles do not provide for more lenient terms. For instance, Article 44 (2) and Article 36 (2) of Model Articles for private and public companies respectively. The Companies Act 2006 also provides more lenient rulings regarding the special resolution.

Meetings and resolutions emerge as core parts of a company once register a ltd company with companies house. The proper use of these meetings can lead to right decisions and successful development of the company.

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