Extraordinary Resolution
An extraordinary resolution, in the context of corporate governance, refers to a type of resolution that required a higher level of consensus among shareholders or members of a company, surpassing the simple majority typically necessary for standard resolutions. Historically, under the UK’s Companies Act 1985, an extraordinary resolution was imperative for major decisions, such as winding up the company, amendments to the articles of association, or other significant corporate actions.
This resolution necessitated a notification period of at least 14 days before the general meeting at which it was to be proposed. Moreover, a robust approval from 75% of voting participants was mandatory for the motion to carry through. The enactment of the Companies Act 2006, however, phased out the requirement for such resolutions, though some companies might still retain this mechanism in their individual articles of association as a behavioral relic or a legal safeguard.
Historical Context and Legal Evolution
Historically, the extraordinary resolution served as a protective mechanism ensuring that significant actions had a substantial endorsement, thereby minimizing adverse decisions taken by a simple majority. However, with legislative advancements and a move towards flexible corporate governance, the Companies Act 2006 abolished the necessity for extraordinary resolutions for most statutory purposes. It highlights a shift towards streamlining decision-making processes while still safeguarding stakeholder interests through other means.
Current Applications and Implications
Today, while the concept of an extraordinary resolution is no longer a statutory requirement under the Companies Act 2006, companies may still opt to include such clauses in their governing documents. This continuation often serves to address shareholders’ interests in maintaining control over critical corporate decisions and ensuring a stronger consensus for actions that could significantly impact the company’s trajectory.
Related Terms
- Special Resolution: Requires a 75% majority but is commonly used for significant yet less extraordinary corporate decisions.
- Ordinary Resolution: Passed with a simple majority, used for routine day-to-day corporate governance matters.
- Companies Act 1985: Previous legislation requiring extraordinary resolutions for major decisions.
- Companies Act 2006: Updated legislation that streamlined many aspects of corporate governance in the UK.
Further Reading
- “Corporate Governance” by Robert Monks and Nell Minow - Provides an in-depth look into the mechanisms of corporate governance, including the roles different types of resolutions play.
- “UK Company Law” by Charles Wild and Stuart Weinstein - A detailed guide on the legislative environment governing UK companies, with insights into the evolution from the Companies Act 1985 to the Companies Act 2006.
In sum, whether consigned to the history books or still lurking in the articles of association, the extraordinary resolution remains a fascinating study of how corporate decisions are balanced against the demands for democratic consensus and decisive action. Just like a peculiar artifact in the corporate governance museum, it continues to intrigue and educate. With the swing of a 75% majority, the corporate world turns—or at least, it used to.
