Section 103 of the Companies Act 1997 is the provision most used in practice by closely held companies.
Section 103(1) — the double 75 per cent
Subject to subsections (2) and (3), a resolution in writing signed by not less than 75% of the shareholders who would be entitled to vote on that resolution at a meeting, who together hold not less than 75% of the votes entitled to be cast on it, is as valid as if it had been passed at a meeting of those shareholders.
75 per cent of the shareholders by number, and those signatories must together hold 75 per cent of the votes. A single holder of 90 per cent of the shares cannot sign a written resolution alone in a company with four shareholders — the head-count limb is not satisfied.
Conversely, three of four shareholders holding only 60 per cent between them satisfy the head-count but not the voting limb. Section 103 works smoothly in companies with few shareholders who are broadly aligned; it does not work in a company with a large dispersed register.
The same 75 per cent applies whether the resolution is an ordinary resolution that would need only a simple majority at a meeting, or a special resolution that would need 75 per cent. The trade-off for dispensing with a meeting is a uniformly higher bar.
Sections 103(2) and (3) — matters the Act says must be decided at a meeting
A resolution in writing that (a) relates to a matter required by this Act or by the constitution to be decided at a meeting of shareholders, and (b) is signed by the shareholders specified in subsection (3), is made in accordance with this Act or the constitution.
Subsection (3) identifies those shareholders as the same ones described in subsection (1). So even a matter the Act says must be decided at a meeting can be dealt with by a written resolution signed to the double 75 per cent standard. Read with section 86, which permits shareholder powers to be exercised at a meeting or by a section 103 resolution, the written route is genuinely equivalent.
Sections 103(3A), (4) and (7) — the mechanics
A resolution may consist of one or more documents in similar form — including letters, telegrams, cables, facsimiles, telex messages, electronic mail, or other similar means of communication — each signed or assented to by or on behalf of one or more of the shareholders.
A person registered as the holder of parcels of shares having different beneficial owners may expressly sign in respect of shares having one beneficial owner and refrain from signing in respect of shares having another.
A resolution may be signed without any prior notice being given to shareholders.
Nominees and trustee companies often hold several parcels for different beneficiaries. Subsection (4) lets such a holder split its position. It also connects directly to the buy-out rights: under section 91(c)(ii) and section 99(c)(ii), a shareholder preserves the right to require the company to purchase shares by not signing, or refraining from signing in respect of all the shares registered in that shareholder’s name having the same beneficial owner.
Section 103(6) — the five-day notice to non-signers
Within five days of a resolution being passed, the company shall send a copy to every shareholder who did not sign it, or did not sign it in respect of all the shares registered in that shareholder’s name.
Failure is an offence by the company (section 413(1)) and every director (section 414(1)) — s 103(8).
Under section 92(1)(b), a shareholder entitled to a buy-out after a written resolution has one month after the date on which notice of the passing of the resolution is given to the shareholder. So the section 103(6) copy is what starts that period running — another reason for the board to send it promptly and keep proof.
Section 103(5) — dispensing with the annual meeting
It shall not be necessary for a company to hold an annual meeting under section 101 where everything required to be done at that meeting (by resolution or otherwise) is done by resolution in accordance with subsections (2) and (3).
The words are wide. They include laying the annual report and financial statements, appointing or reappointing the auditor, and any resolution the constitution requires at the annual meeting.
What cannot be replicated is the section 90(1) right of shareholders to question, discuss or comment on the management, and the auditor’s right under section 203 to attend and be heard. In a company with a genuine minority, dispensing with the annual meeting removes the minority’s one guaranteed opportunity to ask questions — and may itself be evidence in a section 152 claim.
Section 103 compared with section 89
| s 103 — written resolution | s 89 — unanimous assent | |
|---|---|---|
| Who must sign | 75% by number and by votes | All shareholders |
| Form | Writing; counterparts and electronic means allowed | Writing — s 89(1)(c) |
| Overrides the constitution? | No | Yes — deemed validly authorised notwithstanding the constitution |
| Disapplies Act provisions? | No | Yes — those listed in Schedule 1 |
| Buy-out right preserved for non-signers? | Yes — ss 91, 99 | Not applicable — everyone has agreed |
| Personal liability of signatories | None as such | Yes — s 89(5) for an improper distribution |
Sources
- Companies Act 1997 — ss 86–89, 90, 91, 92, 99, 101, 103, 152, 203, 209–212, 413, 414; Schedules 1 and 2
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.