Difference Between Ordinary Resolution and Special Resolution

Shareholders wield significant authority in determining crucial company matters. They exercise this authority by participating in shareholder meetings, such as annual general meetings or general meetings, and by voting either in favor or against proposed resolutions. Resolutions can be categorized into two types: ordinary and special. This article objective is to delineate the role of shareholder voting in meetings, elucidate the disparity between ordinary and special resolutions, and outline the types of measures necessitating special resolution approval.

What is an Ordinary Resolution?

An ordinary resolution signifies a formal decision reached by a company's shareholders or members during a meeting. It is ratified by a simple majority vote of those present and voting and typically addresses routine or uncontroversial matters. Examples of issues settled through an ordinary resolution include electing directors, endorsing financial statements, and sanctioning alterations to the company's articles of incorporation.

Following its passage, an ordinary resolution becomes binding on all members or shareholders, irrespective of their attendance or voting stance at the meeting. The resolution is documented in the meeting minutes and usually submitted to the relevant government entity or regulatory authority.

Instances where ordinary resolutions might apply encompass:

• Selection or removal of directors
• Adoption of financial reports
• Approval of amendments to the company's articles of incorporation
• Endorsement of mergers or acquisitions
• Authorization of employee stock option plans
• Sanctioning dividends or capital distributions
• Nomination of an auditor

Advantages

There are several benefits associated with employing ordinary resolutions for decision-making within a company or organization:

• Simplicity: Ordinary resolutions are enacted through a straightforward majority vote, which is easily understandable and executable.
• Versatility: Ordinary resolutions can address a broad spectrum of matters, encompassing routine or uncontroversial decisions.
• Efficiency: Ordinary resolutions require a simple majority vote and can be swiftly approved with minimal delay.
• Cost-effectiveness: Ordinary resolutions entail less formality and expense compared to other resolution types, such as special resolutions.
• Transparency: An ordinary resolution constitutes a formal decision documented in meeting minutes, ensuring transparency and accountability.
• Shareholder Participation: Ordinary resolutions empower shareholders to voice their opinions on company matters and exercise their voting rights to safeguard their interests.

Disadvantages

While there are various advantages associated with utilizing an ordinary resolution for decision-making within a company or organization, there are also certain potential drawbacks to consider:

• Restricted control: Due to its reliance on a simple majority vote, an ordinary resolution may enable a small faction of members or shareholders to pass resolutions that don't align with the broader interests of the majority.
• Absence of unanimity: An ordinary resolution might not necessarily reflect a genuine consensus among members or shareholders, as it only mandates a simple majority vote.
• Susceptibility to manipulation: An ordinary resolution could be susceptible to manipulation by a minority group of members or shareholders with vested interests in the outcome.
• Limited protection for minorities: Unlike a special resolution, an ordinary resolution may not offer as much protection for minority shareholders.
• Inefficacy: In certain instances, opting for an ordinary resolution may not be the most efficient method for decision-making, potentially neglecting the perspectives of all members or shareholders.
• Lack of oversight: An ordinary resolution might be ratified without adequate oversight, raising concerns about potential poor decision-making or financial mismanagement.

What is Special Resolution?

A special resolution refers to a formal decision reached by the members or shareholders of a company or organization during a meeting. It necessitates a higher threshold of votes compared to an ordinary resolution, typically requiring at least 75% or more of the votes in favor. Special resolutions are commonly employed for significant or contentious matters that demand a heightened level of approval from members or shareholders.

Examples of issues that might be addressed through a special resolution include:

• Altering the company's name
• Augmenting the authorized share capital
• Modifying the company's articles of association
• Endorsing a share buyback
• Adjusting the company's business type
• Authorizing the sale of a substantial asset

To adopt a special resolution, a quorum (minimum number of members or shareholders required to be present) must be met at the meeting, and a larger percentage of those present and voting must support the resolution. The quorum is typically stipulated in the company's articles of association or bylaws.

Following its passage, a special resolution is binding on all members or shareholders of the company or organization, irrespective of their attendance at the meeting or their vote in favor of the resolution. The resolution is documented in the meeting minutes, and a copy is usually lodged with the relevant government entity or regulatory authority.

Advantages

• Safeguarding minority shareholders: A special resolution requiring a higher proportion of favorable votes offers increased protection for minority shareholders, ensuring critical decisions garner support from a substantial portion of the membership or shareholders.
• Enhanced consensus: A special resolution signifies a heightened level of agreement among members or shareholders, as it mandates a greater percentage of affirmative votes.
• Elevated scrutiny: Special resolutions may undergo more rigorous oversight and examination, fostering improved decision-making and financial stewardship.
• Augmented authority: Special resolutions empower members or shareholders to exert greater influence over significant decisions, such as alterations to the company's articles of incorporation or the disposition of substantial assets.
• Transparency: Special resolutions constitute formal decisions documented in meeting minutes, enhancing transparency and accountability.
• Legal obligation: Certain matters may necessitate a special resolution by law, such as alterations to the company's name, augmentation of authorized share capital, or amendments to the articles of association.

Disadvantages

• Elevated passage threshold: Special resolutions demand a heightened level of shareholder support for approval, potentially complicating the passage of critical decisions.
• Increased time and expense: Conducting a special resolution meeting and tallying votes can be resource-intensive and time-consuming.
• Potential for delays: Disputes or challenges to special resolutions may result in implementation delays.
• Limited agility:Special resolutions may take weeks or months to enact, hindering the company's ability to address urgent matters swiftly.
• Restricted autonomy without shareholder endorsement: Special resolutions typically pertain to significant decisions requiring shareholder approval, limiting the company's ability to act independently on these matters.

Similarity between Ordinary and Special Resolution Both ordinary and special resolutions are formal decisions made by a company's shareholders, sharing several similarities:

• Both necessitate a shareholder meeting: Both types of resolutions require a convened meeting of shareholders where the resolution is presented and voted upon.
• Quorum requirement: Both ordinary and special resolutions mandate the presence of a quorum, a minimum number of shareholders required for the resolution to be valid.
• Voting necessity: Approval of both types of resolutions depends on a vote from the shareholders present at the meeting.
• Documentation in meeting minutes: The outcomes of both ordinary and special resolutions are documented in the meeting minutes, detailing the decisions made.
• Impact on the entire company: Both resolutions are utilized for decisions affecting the entirety of the company rather than individual shareholders or specific groups.

Key Differences

Conclusion

In conclusion, shareholder resolutions play a pivotal role in shaping the direction and decisions of a company or organization. While ordinary resolutions address routine matters with a simple majority vote, special resolutions are reserved for significant decisions requiring a higher threshold of support. Both types of resolutions underscore the importance of shareholder participation and documentation of decisions, ensuring transparency and accountability within the organization. Understanding the distinctions between ordinary and special resolutions empowers stakeholders to navigate governance processes effectively and make informed decisions that uphold the interests of all parties involved.