Definition
A Special Resolution is a term used in corporate law that refers to a decision made by the shareholders of a company that requires at least 75% approval to pass. It is often used for significant changes such as altering the company’s constitution, changing the company’s name, or restructuring share capital. This type of resolution is considered ‘special’ because it requires a higher majority than an ordinary resolution.
Key Takeaways
- A Special Resolution is a shareholder decision that requires at least 75% of voting shareholders to approve. It is used for critical matters affecting a company, such as changes to the company’s constitution or name, or the winding up of the company.
- Special Resolutions are often used to control major structural changes within the company, ensuring that a vast majority of shareholders agree with the decision, thus preventing drastic changes that only a small majority supports.
- The passing of a Special Resolution must be properly documented and lodged with relevant bodies such as Companies House (in the UK) or the Securities and Exchange Commission (in the US). This record-keeping ensures transparency and accountability within the company.
Importance
A Special Resolution is significant in finance due to its role in making critical decisions within a company.
This term refers to a resolution passed by a supermajority of shareholders, typically requiring at least 75% approval.
It’s necessary for decisions that can drastically impact a company’s operations or structure, such as amendments to the articles of association, changes to the company’s name, or the sale of a substantial part of the business.
Overall, a Special Resolution allows shareholders to exercise their right to influence significant corporate decisions, promoting democratic governance and protecting their interest in the company.
Explanation
Special Resolution is an important tool that serves a critical function within corporate governance and decision-making processes. It is essentially used for passing certain extraordinary decisions that significantly affect a company’s constitution and direction.
Such decisions could range from altering the company’s name, altering the company’s structure, winding up of the company, reducing share capital, or changing the company’s articles of association. The application of Special Resolution depends on the relevance and criticality of a particular decision to the future of the company.
The core purpose of a Special Resolution is to ensure that any major alterations to the company’s constitution are not executed without a substantial degree of consensus among the shareholders. This is because these decisions often have a significant and lasting impact on the company and its stakeholders.
Therefore, the Special Resolution promotes fairness, transparency, and democracy within the organization, ensuring that the will of the majority governs its functioning. Generally, a Special Resolution requires a 75% majority vote among shareholders for it to pass, further signifying its emphasis on collective decision-making.
Examples of Special Resolution
Corporate Mergers or Acquisitions: An example of the finance term “Special Resolution” can be seen in the process of corporate mergers or acquisitions. In these instances, the board of directors or shareholders may need to pass a special resolution to approve the proposed merger or acquisition. For example, when Disney decided to acquire 21st Century Fox, shareholders had to pass special resolutions approving this large and significant financial transaction.
Changing Company’s Name: Changing a company’s name requires a special resolution because it materially alters the constitution of the company. For instance, in 2015, Google restructured itself and established a new parent company called Alphabet Inc. This significant change required a special resolution to be passed by the shareholders.
Selling Major Assets: Another real world example could be when a company decides to sell a major or substantial part of its business. For example, when Microsoft sold its Nokia devices and services business to a group of Finnish investors, this required a special resolution by the shareholders to authorize the transaction. Special resolutions in such cases ensure transparency and consent from stakeholders in major financial decisions.
Frequently Asked Questions about Special Resolution
What is a Special Resolution?
A special resolution is a decision made by the shareholders of a company that requires at least 75% of the votes in favor. It is typically used for significant decisions, such as changes in the company’s constitution, name change, or reducing share capital.
Why are Special Resolutions important?
Special Resolutions are important because they ensure that major decisions cannot be made without the agreement of a large majority of the shareholders. This prevents a small group of shareholders from making decisions that the majority may not agree with.
How is a Special Resolution passed?
A Special Resolution can be passed either at a general meeting of shareholders or by a written resolution. In both cases, at least 75% of the votes cast by eligible shareholders must be in favor of the resolution.
What is required for a Special Resolution to be valid?
For a Special Resolution to be valid, the company must give shareholders at least 14 days’ notice for the meeting at which it will be proposed, and at least 75% of votes cast must be in favor of the resolution.
Can a Special Resolution be reversed?
A Special Resolution can only be reversed by another special resolution. This means that a minimum of 75% of voting shareholders would need to vote in favor of reversing the original decision.
Related Entrepreneurship Terms
- Shareholder Vote
- Extraordinary Resolution
- Corporate Governance
- Company Articles
- Board of Directors’ Approval
Sources for More Information
- Investopedia: An extensive resource for learning about a wide range of finance and investing topics, including special resolutions.
- Corporate Law Blog: This blog offers detailed articles on various aspects of corporate law, including the use of special resolutions.
- Encyclopedia Britannica: A trusted source of knowledge for centuries and has detailed articles on many finance terms, including special resolution.
- Bloomberg: Known for its up-to-date business, financial information & news; Bloombrg also offers insights on finance terms like special resolution.
