Division 3 of Part VII of the Companies Act 1997 divides authority between the shareholders and the board.
Section 86 — only two ways
(1) Powers reserved to shareholders by this Act may be exercised only — (a) at a meeting of shareholders pursuant to section 101 or section 102; or (b) by a resolution in lieu of a meeting pursuant to section 103.
(2) Powers reserved by the constitution may, subject to the constitution, be exercised the same two ways.
A decision reached informally — over the telephone, in correspondence, by a majority signing nothing — is not an exercise of a shareholder power. The two permitted routes are a properly convened meeting or a written resolution under section 103.
The one further route is section 89: where all shareholders agree or concur in writing, the action is deemed validly authorised notwithstanding the constitution, and the provisions listed in Schedule 1 do not apply.
Section 87 — the default is a simple majority
(1) Unless otherwise specified in this Act or the constitution, a power reserved to shareholders may be exercised by an ordinary resolution.
(2) An ordinary resolution is one approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question.
The majority is calculated against votes actually cast, not against all issued shares. Abstentions and absent shareholders do not count against the resolution. Shares whose votes are of no effect — for example under section 64(4)(b), or shares a company holds in itself under section 57B — are excluded.
Section 88 — the five reserved decisions
(a) adopt a constitution or, if it has one, alter or revoke it; or
(b) approve a change in the company’s name; or
(c) approve a major transaction; or
(d) approve an amalgamation under section 234; or
(e) put the company into liquidation,
the power shall be exercised by special resolution.
A constitution cannot reduce these five to an ordinary resolution. Under section 32(2) a clause attempting it would have no effect. A constitution may, however, require a higher majority — see the special resolution.
(2) A special resolution under paragraphs (a) to (d) can be rescinded only by a special resolution.
(3) A special resolution under paragraph (e) — putting the company into liquidation — cannot be rescinded in any circumstances.
Subsection (3) is absolute. Once the shareholders resolve to liquidate, they cannot change their minds: a liquidation commences under section 291, control passes to the liquidator, and the only way out is an application to the Court under section 300 to terminate the liquidation.
Who decides what
| Decision | Who | Section |
|---|---|---|
| Managing the business and affairs | Board | s 109 |
| Issuing shares | Board — shareholders only where the constitution restricts, under s 44A | ss 43, 44A |
| Authorising a distribution or dividend | Board | ss 50, 51 |
| Buy-back or financial assistance | Board, with disclosure to shareholders | ss 57, 63 |
| Appointing and removing directors | Shareholders, by ordinary resolution | ss 131, 134 |
| Appointing an auditor | Shareholders | s 190 |
| Major transaction | Shareholders — special resolution | ss 88(1)(c), 110 |
| Adopting, altering or revoking the constitution | Shareholders — special resolution | ss 33, 88(1)(a) |
| Change of name | Shareholders — special resolution | ss 24, 88(1)(b) |
| Amalgamation under section 234 | Shareholders — special resolution | ss 88(1)(d), 234 |
| Putting the company into liquidation | Shareholders — special resolution, irrevocable | ss 88(1)(e), 291 |
| Directors’ remuneration | Board, on the s 139 conditions and certificate | s 139 |
Under section 109 the business and affairs of a company shall be managed by, or under the direction or supervision of, the board. Shareholders cannot direct the board by resolution: under section 90(3), a management resolution is not binding on the board unless the constitution says it is.
What shareholders can do instead is change the board, by ordinary resolution under section 134 — the ultimate control.
Sources
- Companies Act 1997 — ss 24, 32, 33, 43, 44A, 50, 51, 57, 57B, 63, 64, 86–90, 101–103, 109, 110, 131, 134, 139, 190, 234, 291, 300; Schedule 1
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.