Article by Vanshika Godara, Edited by Drishti Saigal

 

What are company resolutions under the Indian Companies Act, 2013, the law regulating corporations in India. How to draft a resolution after a board meeting in a company - explained.

A Brief Introduction to Company Resolutions as per the Companies Act, 2013

Since a company is an artificial person and given a legal persona, any decision which is to be taken by a company is via, what is known as a ‘Resolution’.

During the lifetime of your company, you need to hold some general meetings or board meetings, whenever an important decision is to be made by the members and directors respectively.

In these instances, some procedures and rules are required to be followed by the company to ensure that meetings and the decisions taken therein comply with the Companies Act, 2013, which is the Indian Company Law.

 

An Example of a Company Resolution 

This could be a company’s board decision of reducing the wages for its executives or key managerial personnel as a result of an extended period of decreased profits, with the aim of minimizing the company’s overall expenses and thereby having a better financial standing.

A smaller scale business resolution would be a manager’s decision to fire an employee because of his/her bad performance.

These are just examples and there are a lot of legal intricacies that are involved in passing resolutions by a company. And, in this article, you’ll get to know everything about them!

Meetings and Its Relationship with Company Resolutions

As already stated, decisions taken in a company meeting are known as resolutions. These resolutions may be undertaken by shareholders as well as the board of directors or committees such as the audit committee or the independent directors.

 

To better understand how resolutions operate, first we have to look at the types of meetings that occur in a company.

 

What is an Annual General Meeting?

Annual general meetings are attended by shareholders who make the deciding call on how to run their company.


Any formal meeting of the shareholders of a company every year is termed as an Annual General Meeting.

Annual General Meetings are called upon by the Directors for the shareholders to discuss amongst each other the following:

  • Appointment of a Director.
  • Removal of a Director.
  • Company’s finances.
  • Changing the name and structure of the Company.
  • Issuing more of Company’s shares.
  • Dealing with Legal claims.
  • Dealing with Legal proceedings.
  • Dissolving the Company, etc.
  • Altering the Articles of Association of the Company.

To call a General Meeting, a notice is to be issued for a period of 21 days. The notice should include the following:

  • Date, time and location of the meeting.
  • Type of general meeting.
  • Nature of the meeting.
  • Statement that declares ‘every shareholder has a right to appoint a proxy.’
  • Date of notice issued.
  • Name of the person calling the meeting.

Any kind of a formal decision which is made by a shareholder during the meeting requires ‘passing of a resolution’.

 

The copies of these resolutions shall be filed in the registered office of the company, as per the Memorandum of Association within a period of 15 days after the passage of the resolution.

What is a Board Meeting?

A Board meeting is an official meeting of all the Board of Directors (BoD) of the company.

These meetings are held when the directors collectively have to make decisions, raise concerns, review financial queries or present proposals of the business and make new strategies for the future.

The purpose of such meetings are as follows:

  • Allotment of shares, including advisory shares or for entering into share purchase agreements with venture capitalists or for discussing the viability of other funding opportunities.
  • Issuing a share certificate.
  • Appointment of executives or KMPs.
  • Delegation of the duties and responsibilities to the C.S.
  • Confirming the vision, mission, objectives and values of the company.
  • Setting up a business bank account.
  • Discussing about the hiring of staff, etc.

Directors are legally bound to document the details of the meetings by recording the minutes.
Recording of the minutes acts as an evidence of the proceedings of the meeting and should include the following:

  • Company’s name.
  • Address of the Registered office.
  • Apologies for absentees.
  • Proposals for the resolutions.
  • Proposed resolutions.
  • Name of all the persons in the attendance.
  • Queries or objections raised.
  • Signature of the directors, etc.

A copy of the minutes shall be kept by the company in the registered address and shall be preserved permanently.

 

So, What are Company Resolutions and Where do they Fit In?

Since a company is a legal entity and an artificial person, it needs to make decisions. And, since it can’t make decisions by itself, its directors are the ones who make the decisions for it (in most cases; during an Annual General Meeting, the shareholders vote on decisions pertaining to the company).

And, how to they make these decisions?

Well, they make them by passing resolutions. However, the thing is shareholders can also pass resolutions. Although these are much broader and less often exercised, it’s still there.

A legally binding decision, which is made, by a company’s shareholders / directors is termed as a Resolution. If the majority of the votes are passed in the favour of a decision then it is said that a ‘resolution is passed’.

In other words, collective decisions of the directors or shareholders are called resolutions.

What Decisions require a Resolution to be passed under the Companies Act, 2013?

Many decisions require resolutions to be passed. Some examples are:

  • Appointment of directors.
  • Changing the director’s power and responsibilities.
  • Changing the name of the company.
  • Changing the share structure of the company, etc.

Types of Resolutions as per Indian Company Law

The resolutions can be divided into 2 types:

  1. Members’ Resolutions
  2. Directors’ Resolutions

Members’ Resolutions

There are several categories of resolutions, which can be passed by members:

#1. Ordinary Resolutions

They can be passed by the simple majority votes of the shareholders. It is mentioned in the section 114 of the Companies Act, 2013. Moreover, anything, which can be done with an ordinary resolution, could also be done with a special resolution.

#2. Special Resolutions

They can be passed by 75% of the majority votes of the shareholders. It is mentioned in the section 114 of the Companies Act 2013.

As per Section 114(2)© of the Companies Act, 2013:

“The votes that are cast in the favour of the resolution,whether on show of hands, or electronically or on a poll, as the case may be, by the members who, being entitled to do so, vote in person or by a proxy or by postal ballot, are required to be not less than three times the number of votes, if any, cast against the resolution by the members so entitled and voting.”

#3. Directors’ Resolution

When the resolutions are passed by a simple majority between the directors of the company, these are known as directors’ resolutions.

What Records Must be Kept when Passing a Company Resolution as per Indian Company Law?

Records, minutes and legal details need to be kept during any board meeting wherein a resolution is passed.

Resolutions, which are passed in a meeting, should be accurately recorded within the minutes of the meetings. 

The minutes need to be distributed to the directors within 15 days of the conclusion of the meeting.

When a member or director requests for a minute, he must be given so, within 7 days of his request. Furthermore, all the shareholders must receive a written notification of any resolutions passed.

If the records are not kept, then a penalty under the Companies Act, 2013 will be imposed.

The company must keep all the records or decisions available for inspection and keep them at the company’s registered office or other specified location.

Passing of Resolutions by a Circulation under the Companies Act, 2013

When it is not feasible to call a committee meeting and the approval of all the directors is required on an urgent note then a resolution can be passed with the help of a circulation.

As per section 175 of the Companies Act, 2013 read along with rule 5 of the Companies (Meeting of Board and its Powers) Rules, 2015, the company may pass a resolution by circulation without conveying a meeting.

Drafting the Resolution to be Circulated

In order to pass a resolution by a circulation, the draft proposed is to be passed together with the required documents, if any, shall be circulated to all the directors of the board.

 

Modes of sending the Resolution by a Circulation

The various ways of sending the resolution to be passed via circulation are:

  • By hand delivery.
  • By speed post.
  • By emailing it at their email address which is registered with the company.
  • By sending a courier on the registered address.
  • By a registered post on the registered address.

 

Passing the Resolution

The resolution shall be passed if it is approved by the majority of the votes among the directors voting for the resolution.

Time Limit & Method for Responding to a Resolution Passed for Circulation in a Board Meeting

Maximum time period of 7 days is given to a director after the circulation of the draft, regarding the resolution. In case a director does not respond until the last date then it is presumed that he / she has been abstained from voting.

Validity of a Company Resolution passed via Circulation

Passing the resolution by a circulation is as valid as if it is passed by the directors in a duly organised meeting of the Board of Directors.

Resolutions, which cannot be passed by a Circulation

The following matters can only be passed in a board meeting and not by a circulation:

  • Matter relating to changing of the company’s Auditor.
  • Declaration of dividends.
  • Sale/Purchase of assets.
  • Investing capital.
  • Making some contribution to politics.
  • Appointment of a Managing Director.
  • Issuing of shares/debentures.
  • Providing loans.
  • Filling key managerial vacancies.
  • Considerations of buying shares of other companies via a share purchase agreement or a stock purchase agreement or in fact a merger and acquisition, etc.

Related Read: All You Need to Know for Creating a Power of Attorney for Your Business

How to Draft a Resolution by a Circulation

In this case, there are two main matters to consider –

  1. How to draft a resolution that is going to be circulated among the directors;
  2. How the directors can respond to the draft resolution by accepting or rejecting it.

 

The Format for Drafting a Draft Resolution, to be passed by Circulation is as under:

To,

Name of the Director

Date of Circulation
Subject
Total No. of Items proposed
Circular Resolution No.

The above table is with the reference to the provisions of section 175 of the Companies Act, 2013, read along with the rules prescribed.


Format for the Acceptance/Rejection of a Circular Resolution

The format is as follows:

Name of the Director:

Directors’ Identification Number: _____

Item No. Assent* Dissent* Signature** Date of Signing Remarks, if any
1.

*Assent/Dissent may be given by mentioning ‘Yes’ in the respected field.
*Signature is not required if the circulation is done through an email.

Important Provisions related to Circular Resolutions are-

  • No company shall prevent from having to undergo the prescribed minimum number of board meetings by using a circular resolution.
  • A circular resolution can be passed by a committee or a board meeting.

Matters requiring Sanctions by Ordinary Resolutions

S.NO. Sections as per the Companies Act, 2013 Description of sections
1. 4 In case a company provides wrong details or information for the approval of its name to the Registrar, the Registrar may direct the company to change its name within a period of 3 months by passing an ordinary resolution. 

(Related Reads: All You Need to Know about Memorandum of Association and 
Articles of Association for Indian Companies)
2. 16 If the name of the company resembles or is close to a name of any existing company or it tries to copy the trademark of a company, in such a case,the company is directed to change it’s name within a time period of 3-6 months by passing an ordinary resolution.
3. 61 A company can call for an ordinary resolution to:

·         Increase it’s authorized share capital.

·         Divide the amount of share capital.

·         Convert the fully paid-up shares into stock and  reconvert stock into fully paid-up shares.

·         Sub-divide it’s shares.

·         Cancel the uncalled shares.

4. 63 Capitalize the company’s profit to issue fully paid-up shares.
5. 65 If an unlimited company is converting itself into a limited company,they need to provide for a reserve share capital through an ordinary resolution.
6. 73 & 76 A company can pass an ordinary resolution which can be subjected to certain rules which are prescribed with the consultation of RBI,accepting deposits from the members on certain terms and conditions,which can include the provisions related to the security or repayment of certain deposits along with the interests which are also subjected to certain terms and conditions.
7. 102 read along with 123, 139, 140, 142, 152


4 main businesses are transacted at the Annual General Meeting-

·         To consider the financial statements and the reports of the Board of Directors and auditors.

·         To declare the dividend.

·         To appoint directors in the place of the retiring directors;

·         The appointment and fixing of the remuneration of the auditors.

8. 148 With the help of an ordinary resolution, the remuneration of the cost accountant can also be fixed.
9. 161 With the help of an ordinary resolution, the board can appoint an alternate director.
10. 169 A company, by passing an ordinary resolution can remove a director.
11. 181 The company needs to contribute 5% of it’s net profits for 3 immediately preceding financial years.
12. 192 With the help of an ordinary resolution,the company can restrict the non-cash transactions.
13. 196 Appointment of a managing director
14. 197 Maximum remuneration that can be paid to key managerial personnel.
15. 304 Ordinary Resolution is to be passed in a General Meeting, which requires the company to wind up voluntarily as a result of the expiry of the period for its duration, if any, fixed by the articles or on the occurrence of any such event with respect to which the articles provide that the company should be dissolved.
16. 310 In case of winding up, appointing an official liquidator and fixing up the required remuneration of the liquidator.
17. 311 Ordinary resolution also helps to fill the vacancies in the company,if any.  
18. 314 The board can also call a meeting by passing a resolution for obtaining the sanction of the company.
19. 318 After the satisfaction of all the members of the company for its winding up, a resolution can be passed for the dissolution of the company.
20. 366 For the companies to be registered as “companies limited” an undertaking shall be passed by all the members of the company by passing an ordinary resolution.


Matters requiring Sanctions under a Special Resolution

S.no. Section Description of sections
1. 12 Special resolution is passed to change the registered office of the company which is outside the limits of the city,town, etc.
2. 13 It can also be used for altering the Memorandum of the company.
3. 41 It is used to issue Global Depository Receipt.
4. 54 To issue the sweat equity shares.
5. 62 To determine the terms and conditions for issuing the debentures which can be converted into shares.
6. 66 Special resolution can be used for the reduction of the share capital of the company.
7. 71 Special resolution can be used for issuing the debentures which can be converted into shares,partially or wholly.
8. 140 Helps in the removal of the Auditor of the company.
9. 149(1) Helps in the appointment of more than 15 directors.
10. 149(10) The company can re-appoint the independent director for a period of 5 years more after passing a special resolution.
11. 165 By passing a special resolution the members of the company can also behave like the directors of the company.
12. 180 It helps in restricting the powers of the board.
13. 186 Helps in keeping a check on the loans and the investments of the company.
14. 188 Special resolution is used by the company for entering into contracts which have paid-up share capitals.
15. 196 Helps in the appointment of people who are aged 70 years or more for the position of Managing directors, Managers,etc.
16. 210 Special resolution is passed to intimate the Central Government regarding the affairs of the company which are to be invested.
17. 271 Special resolution is passed to wind up the dissolution of the company by the tribunal.
18. 304 Special resolution is passed to voluntarily dissolve the company.
19. 219 Special resolution helps in granting the powers to the Company’s Liquidator regarding the acceptance of the shares of the company.
20. 347 Special resolution is passed incase of disposing the books of accounts and papers of the company for complete winding up and dissolution of the company.

 

Real Example of a Company’s Resolution

In December 2017, the National Company Law Tribunal (NCLT) extended the time, during which another firm named Electrosteel Steels Limited was ready to invest in its corporate insolvency resolution process.

This extension was an addition to the 90 days, which begun on January 17, 2018.

The Kolkata based steel company was under a debt of Rs. 10,274 crores that it owed to the SBI bank.

Facing some insolvency proceedings, the steel company admitted to undergo the insolvency process.

The admission was recommended at the Committee of Creditors (CoC) meeting on December 6, 2007. The executive members of the NCLT noted that the minutes of the meeting underscored the CoC by approving the resolution by a vote of 99.82%.

Wrapping it Up

A Company being a man-made person, any decision taken by it shall be within the kind of a Resolution. Accordingly, a resolution could also be defined as an agreement or a decision made by the directors or shareholders of the business.

When a resolution is passed, an organisation is bound by it. The resolutions may be on almost any subject as in case of Board meetings since they are ultimately required for the running the business.

If you have any questions, let me know by leaving your comments down below. And, if you liked this article, do give it a share!
Author Bio: Vanshika Godara was a legal intern at WinSavvy. Connect with her on LinkedIn.
Editor Bio: Drishti Saigal was a legal intern at WinSavvy. Connect with her on LinkedIn.

 

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