Companies Act Section 114

Companies Act, Section 114: Ordinary and Special Resolutions

Section 114 of the Companies Act outlines the distinctions between ordinary resolutions and special resolutions. This section sets forth the procedural requirements for passing both types of resolutions in a company meeting, including the voting process and the necessary conditions for each type of resolution. Understanding these types of resolutions is crucial for maintaining proper corporate governance and ensuring that decisions are made in accordance with the law.

Detailed Explanation of Section 114

1. Ordinary Resolution (Subsection 1):

An ordinary resolution is the most common type of resolution passed at general meetings of a company. It is generally used for decisions that do not require any special approval beyond a majority vote. The conditions for an ordinary resolution are outlined in this subsection as follows:

Notice Requirement: The resolution must be accompanied by the required notice as stipulated under the Companies Act. This ensures that all members are informed about the resolution and have adequate time to consider and participate in the voting process.

Voting Requirement: To pass an ordinary resolution, the votes cast in favor of the resolution must exceed the votes cast against it. This applies regardless of whether the voting is done through a show of hands, electronically, or on a poll. The key point here is that the total number of votes cast in favor must surpass the number of votes cast against the resolution, including the casting vote of the Chairman if applicable.

If the resolution is being passed by a show of hands, members present at the meeting, whether in person or by proxy, are entitled to vote. Similarly, if the company allows voting by postal ballot, the votes cast via postal ballot are also counted in favor of or against the resolution.

The Chairman, in cases where the votes are tied, may exercise a casting vote, which is an additional vote to break the tie. This provision ensures that the decision-making process continues smoothly even in situations where the votes are evenly split.

General Applicability: Ordinary resolutions are typically used for standard business decisions such as approving annual accounts, appointing auditors, and other day-to-day corporate matters that do not involve significant changes to the company’s operations or structure.

2. Special Resolution (Subsection 2):

A special resolution is a type of resolution that requires a higher threshold of approval compared to an ordinary resolution. Special resolutions are typically used for more significant matters, such as altering the company's articles of association, changing the company’s name, or other major decisions that could impact the company’s structure or governance. The criteria for passing a special resolution are more stringent and are outlined as follows:

Intention to Propose as a Special Resolution:

The intention to propose the resolution as a special resolution must be clearly specified in the notice calling the general meeting or in any other communication sent to the members. This ensures that members are fully aware that the resolution being proposed requires a higher threshold of approval than an ordinary resolution.

This provision helps avoid confusion among members about the level of approval required and provides transparency about the nature of the decision being made.

Notice Requirement:

Like an ordinary resolution, the special resolution must be accompanied by a proper notice as required under the Companies Act. This ensures all members are adequately informed and have an opportunity to participate in the decision-making process.

Voting Requirement:

For a resolution to be classified as a special resolution, the votes cast in favor of the resolution must be at least three times the number of votes cast against the resolution. This voting requirement applies regardless of whether the vote is taken by a show of hands, electronically, or on a poll.

Members who are entitled to vote, either in person or by proxy, or by postal ballot, must cast their votes accordingly. The specific requirement that votes in favor must be three times the number of votes against ensures that the resolution has a broad level of support before it can be passed.

This higher threshold ensures that special resolutions, which often involve significant changes to the company, reflect a substantial level of agreement among the members.

Examples of Special Resolutions: Special resolutions are typically required for more critical decisions such as:

Changing the company’s articles of association.

Altering the company’s name.

Approving a merger or acquisition.

Changing the capital structure or introducing new types of shares.

Key Differences Between Ordinary and Special Resolutions:

Notice Requirement:

Ordinary Resolution: Standard notice as per the Companies Act

Special Resolution: Special notice specifying intention

Voting Threshold

Ordinary Resolution: Majority of votes in favor, including Chairman’s casting vote in case of tie

Special Resolution: At least 3 times the votes in favor compared to votes against

Common Use

Ordinary Resolution: Routine decisions like appointment of auditors, approval of financial statements

Special Resolution: Major changes like amendments to the Articles, change in company name, mergers

Type of Matters

Ordinary Resolution: Day-to-day operational matters

Special Resolution: Significant decisions affecting company structure or operations