Differences Between Ordinary Resolution and Special Resolution

 

Understanding the distinction between an ordinary resolution and a special resolution is crucial for company directors, shareholders, and stakeholders. These resolutions play pivotal roles in corporate decision-making, yet they differ significantly in their requirements, purposes, and legal implications. This article will provide an in-depth analysis of these resolutions, their differences, examples, and how they are applied in the context of corporate governance, particularly in Nigeria.

 

 

What is an Ordinary Resolution?

 

An ordinary resolution is a decision passed by a simple majority of the shareholders or members of a company during a general meeting. This means that over 50% of those voting must agree to the proposal for it to pass.

 

Key Features of an Ordinary Resolution

 

1. Voting Threshold: Requires a simple majority (50% + 1 vote) of those present and voting.

 

2. Notice Period: Typically requires at least 21 days’ notice for the general meeting.

 

3. Purpose: Used for routine decisions and matters not requiring a higher level of shareholder approval.

 

4. Examples:

 

Appointment or removal of directors (if not specified otherwise in the articles of association).

 

Approval of annual financial statements.

 

Declaration of dividends.

 

 

 

What is a Special Resolution?

 

A special resolution is a decision that requires a higher threshold of approval—usually at least 75% of the votes cast. It is reserved for significant decisions that could alter the company’s structure, constitution, or objectives.

 

Key Features of a Special Resolution

 

1. Voting Threshold: Requires at least 75% of votes in favor from members present and voting.

 

2. Notice Period: Must be explicitly stated in the notice of the meeting, which is usually 21 days unless otherwise specified.

 

3. Purpose: Used for significant or extraordinary matters requiring a higher consensus.

 

4. Examples:

 

Amending the memorandum and articles of association.

 

Changing the company’s name.

 

Winding up the company voluntarily.

 

Reduction of share capital.

 

 

 

Differences Between Ordinary Resolution and Special Resolution

 

The table below summarizes the key distinctions:

 

Criteria	Ordinary Resolution	Special Resolution
Approval Threshold	Simple majority (50% + 1 vote)	Supermajority (at least 75%)
Purpose	Routine matters	Significant or extraordinary decisions
Notice Requirement	General notice suffices	Notice must specify it as a special resolution
Examples	Appointment of auditors, approval of dividends	Amending articles, voluntary winding-up
Legal Implications	Less impactful on the company’s structure	Often leads to structural or fundamental changes

 

 

Legal Framework in Nigeria

 

In Nigeria, the Companies and Allied Matters Act (CAMA) 2020 governs the use of ordinary and special resolutions. Key provisions include:

 

1. Ordinary Resolutions:

 

Section 258 (1) of CAMA stipulates that an ordinary resolution requires a simple majority vote.

 

Often used in annual general meetings (AGMs) for routine business decisions.

 

 

2. Special Resolutions:

 

Section 258 (2) of CAMA specifies that special resolutions must be passed with at least 75% of votes.

 

The notice of the meeting must explicitly indicate the intention to propose a special resolution.

 

 

Practical Implications

 

1. Drafting Notices:

Companies must clearly state in meeting notices whether a resolution is ordinary or special. This distinction ensures compliance with legal requirements and prepares shareholders for the voting process.

 

2. Record Keeping:

Both types of resolutions must be documented in the company’s minutes of meetings. Special resolutions must also be filed with the Corporate Affairs Commission (CAC) in Nigeria within specific days of passage.

 

3. Compliance and Penalties:

Non-compliance with the requirements for passing resolutions can lead to invalid decisions and possible legal penalties.

 

 

How to Pass Resolutions

 

Steps for Ordinary Resolutions

 

1. Draft the Proposal: Define the matter for decision.

 

2. Send Notices: Issue a notice with at least 21 days’ lead time.

 

3. Conduct Voting: Use a show of hands, proxy votes, or polls, depending on the company’s articles.

 

4. Document the Decision: Record the resolution in meeting minutes.

 

 

Steps for Special Resolutions

 

1. Prepare the Resolution: Draft the proposal, ensuring it meets legal criteria.

 

2. Explicit Notice: State the intention to pass a special resolution in the notice.

 

3. Vote and Approve: Secure at least 75% of votes in favor.

 

4. File with CAC: Submit the resolution to the CAC (for Nigerian companies).

 

 

Frequently Asked Questions

 

1. Can an ordinary resolution be used for matters requiring a special resolution?

No, matters requiring a special resolution must meet the stricter approval threshold to ensure broad consensus among stakeholders.

 

2. Are proxy votes allowed for both resolutions?

Yes, proxy votes are typically allowed for both ordinary and special resolutions, depending on the company’s articles of association.

 

3. What happens if a special resolution fails to achieve 75% approval?

The resolution is not passed, and the proposed action cannot proceed.

 

4. Are resolutions subject to regulatory scrutiny?

Yes, certain resolutions, especially special resolutions, may need to be filed with regulatory bodies like the CAC in Nigeria.

 

 

Conclusion

 

Understanding the differences between ordinary resolutions and special resolutions is fundamental for effective corporate governance. While ordinary resolutions handle day-to-day matters, special resolutions are reserved for decisions with long-term implications. Companies must ensure strict adherence to legal requirements for both types of resolutions to maintain compliance and legitimacy.

 

If you need assistance drafting or filing resolutions with the CAC, contact us today at CACregistration.com to ensure a smooth and compliant process.