Corporate governance and compliance - Written resolutions

Learning Outcomes

After reading this article, you will be able to explain the statutory procedure for written resolutions in private companies under the Companies Act 2006. You will be able to identify which decisions can be made by written resolution, outline the required steps for valid circulation and agreement, and recognise the key limitations and exclusions. You will also be able to apply these principles to SQE1-style scenarios and avoid common pitfalls.

SQE1 Syllabus

For SQE1, you are required to understand written resolutions as a method of decision-making in private companies. Focus your revision on:

  • The statutory requirements for written resolutions under the Companies Act 2006
  • The types of resolutions that may be passed in writing and those that are excluded
  • The procedural steps for proposing, circulating, and passing written resolutions
  • The voting thresholds and time limits for agreement
  • The legal effect and record-keeping obligations for written resolutions
  • The practical advantages and limitations of using written resolutions in corporate governance

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which companies may use the written resolution procedure under the Companies Act 2006?
  2. What is the minimum percentage of voting rights required for members to propose a written resolution?
  3. Name two types of decisions that cannot be made by written resolution.
  4. How long do members have to signify agreement to a written resolution, unless the articles specify otherwise?
  5. What happens if a written resolution does not receive the required majority within the specified period?

Introduction

Written resolutions are a statutory mechanism for private companies to make decisions without holding a general meeting. This procedure allows eligible members to signify their agreement to a proposed resolution in writing, offering a flexible and efficient alternative to in-person meetings. However, strict statutory requirements must be followed to ensure validity, and certain key decisions remain excluded from this process.

Written Resolutions: Statutory Framework

The written resolution procedure is governed by sections 288–300 of the Companies Act 2006. It is available only to private companies. Public companies must hold general meetings for shareholder decisions.

Key Term: written resolution
A formal decision of the members of a private company, passed in writing rather than at a general meeting, in accordance with statutory requirements.

Who Can Propose a Written Resolution?

A written resolution may be proposed by:

  • The board of directors
  • Members holding at least 5% of the total voting rights (or a lower percentage if specified in the articles)

Key Term: eligible member
A person entitled to vote on the written resolution as at the circulation date, usually a registered shareholder with voting rights.

Circulation and Communication

Once proposed, the company must circulate the written resolution to every eligible member. Circulation may be by:

  • Hard copy (post or hand delivery)
  • Electronic means (such as email), if agreed by the member
  • Making the resolution available on a website, if permitted by the articles

The company must also provide a statement explaining how to signify agreement and the deadline for doing so.

Voting Thresholds and Time Limits

There are two types of written resolution:

  • Ordinary resolution: Passed by a simple majority (more than 50%) of total voting rights of eligible members.
  • Special resolution: Passed by not less than 75% of total voting rights of eligible members.

Key Term: circulation date
The date on which copies of the written resolution are sent to eligible members.

Members have 28 days from the circulation date to signify agreement, unless the articles specify a different period. If the required majority is not achieved within this period, the resolution lapses and is not passed.

How to Agree to a Written Resolution

Members signify agreement by:

  • Signing and returning the resolution (in hard copy or electronic form)
  • Following any alternative method set out in the articles

Once the required majority is reached, the resolution is passed and takes effect immediately. Members cannot revoke their agreement after it has been given.

Excluded Decisions

Certain decisions cannot be made by written resolution. These include:

  • Removal of a director before the end of their term (section 168)
  • Removal of an auditor before the end of their term (section 510)

These exclusions ensure that members have the opportunity for discussion and debate at a general meeting before such significant decisions are made.

Key Term: excluded resolution
A decision that cannot be passed by written resolution and must be made at a general meeting, such as removal of a director or auditor.

Procedure for Written Resolutions

The process for passing a written resolution involves several key steps:

  1. Proposal: The directors or qualifying members propose the resolution.
  2. Circulation: The company circulates the resolution and explanatory statement to all eligible members.
  3. Agreement: Members signify agreement within 28 days (or as specified in the articles).
  4. Passing: The resolution is passed when the required majority is reached.
  5. Record-keeping: The company must keep a copy of the resolution and evidence of agreement for at least 10 years at its registered office or SAIL (Single Alternative Inspection Location).

Worked Example 1.1

A private company with 10 shareholders wishes to approve a new share allotment. The directors propose an ordinary written resolution and circulate it to all shareholders by email. Within 10 days, shareholders holding 7,000 out of 10,000 voting shares return signed agreements. Is the resolution passed?

Answer: Yes. The ordinary written resolution is passed as soon as more than 50% of the total voting rights (here, 70%) have agreed in writing. The directors may proceed with the share allotment.

Worked Example 1.2

A group of members holding 6% of the voting rights wish to propose a special written resolution to amend the articles. The articles are silent on the required percentage for member proposals. Can they require the company to circulate the resolution?

Answer: Yes. Members holding at least 5% of the voting rights may require the company to circulate a written resolution, unless the articles specify a lower threshold.

Advantages and Limitations

Advantages

  • Efficiency: Decisions can be made quickly without convening a meeting.
  • Cost-saving: Avoids expenses associated with meetings.
  • Accessibility: Enables participation by members unable to attend meetings in person.

Limitations

  • No discussion: Members cannot debate or amend the resolution during the process.
  • Excluded decisions: Certain important matters (e.g., removal of directors) require a meeting.
  • Non-response: Members who do not respond are treated as not agreeing, which may make it harder to reach the required majority in companies with passive shareholders.
  • Articles may restrict: The articles of association may impose additional requirements or restrictions on the use of written resolutions.

Exam Warning

Written resolutions cannot be used to remove a director or auditor. Attempting to do so will result in an invalid decision. Always check the statutory exclusions before advising on the use of written resolutions.

Key Point Checklist

This article has covered the following key knowledge points:

  • Written resolutions are available only to private companies under the Companies Act 2006.
  • Both directors and members holding at least 5% of voting rights may propose a written resolution.
  • The company must circulate the resolution to all eligible members, with instructions and a deadline.
  • Ordinary written resolutions require more than 50% agreement; special written resolutions require at least 75%.
  • Members have 28 days to signify agreement, unless the articles specify otherwise.
  • Certain decisions, such as removal of directors or auditors, cannot be made by written resolution.
  • The company must keep records of written resolutions and agreements for at least 10 years.

Key Terms and Concepts

  • written resolution
  • eligible member
  • circulation date
  • excluded resolution
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