Difference between ordinary resolution and special resolution
In layman’s terms, a resolution is a formal decision made by an organization while transacting a business at a meeting. Most issues are brought before a meeting via a motion recommending that the meeting should express approval or disapproval, take a specific action, or order something to be done. When such a motion (or proposal) receives the required majority votes of members present at the meeting, it then becomes a resolution. A company is bound by a resolution once it is passed. As per the Companies Act, 2013, resolutions are of two types: ordinary resolution and special resolution.
Below is the description of each of these types:
All about Ordinary resolution
Meaning
Ordinary resolutions are those that are passed by a simple majority of votes.
According to Section 114(1) of the Companies Act 2013, a resolution is an ordinary resolution if proper notice of the concerned matter to be discussed at the meeting is given and the votes cast in favor of the resolution outnumber the votes cast against it, if any. The notice of the meeting must have been given to all members in advance, as required by the Companies Act.
Thus, two requirements must be fulfilled in order to qualify for an ordinary resolution:
- Proper notice must be served.
- More than 50% consent of the members must be obtained for the concerned business being transacted at the meeting.
Other Characteristics of ordinary resolution are as follows:
1. Vote of Chairman
If the Chairman exercises his casting vote, it shall be counted for deciding the resolution. Casting Vote gives a right to the Chairman to cast a second vote in case of equality of votes cast in favor and against the resolution.
2. Method of voting
Voting may be done by show of hands, electronic voting, poll, postal ballot, or any other permitted method of voting.
3. Whose vote counts?
Only the votes of members who are ‘entitled and voting’ will be counted. As a result, those who do not vote or are not permitted to vote (whether under the provisions of this Act or otherwise) are not to be counted.
4. What happens when the law is silent – Is an ordinary or special resolution required?
Whenever a section of the Act or Articles simply states that the company must pass a resolution, give authority in a general meeting, or approve something without specifying the type of the resolution to be passed, in that case, an ordinary resolution is required to be passed.
5. Who is required to give the notice?
The notice of general meeting required to be given may be given either by the company or the member proposing the resolution.
6. Nature of business
This type of resolution is usually passed at the annual general meeting of a company for the conduct of matters related to ordinary business. For example, it could be the adoption of annual accounts, declaration of dividends, etc.
7. Filing with ROC
In certain cases, a copy of the ordinary resolution needs to be filed with the Registrar of Companies (ROC). This applies only to some specific ordinary resolutions as laid down under the Companies Act.
Instances of ordinary resolution
An ordinary resolution is passed for the following:
- Adoption of the financial statements and the reports of the Board of Directors and auditors
- Declaration of any dividend
- Appointment of directors in place of those retiring
- Appointment of, and fixing of the remuneration of the auditors
- Capitalization of profit or reserves to issue fully paid bonus shares
- Fixing of remuneration of cost accountant
All about Special resolution
Meaning
According to Section 114(2) of the Companies Act 2013, a resolution is special if its nature is duly mentioned in the notice convening the general meeting and the number of votes cast in favor is three times the number of votes cast against it. The notice of the meeting must be served to all members in advance, as required by the Companies Act.
In simple words, a resolution shall be a special resolution if the following requirements are met:
- The intention to propose the resolution as a special resolution is clearly stated in the notice. Or the passing of the special resolution is explicitly mentioned on the agenda.
- Notice has been given as required by the Act.
- The number of votes cast in favor of the resolution is at least three times the number of votes cast against the resolution by members, if any. In other words, the resolution is passed with 75% of the valid votes cast in its favor.
Other Characteristics of special resolution are as follows:
1. Method of voting
Similar to ordinary resolution, the voting for special resolution may be done by show of hands, electronic voting, poll, postal ballot, or any other permitted method of voting.
2. Whose vote counts?
This criterion is the same as in the case of ordinary resolution. Hence, only the votes of members who are ‘entitled and voting’ will be counted. As a result, those who do not vote or are not permitted to vote (whether under the provisions of this Act or otherwise) are not to be counted.
3. Who is required to give the notice?
The notice of general meeting required to be given may be given either by the company or the member proposing the resolution.
4. Nature of business
Normally, a special resolution is passed to transact special business. However, a special business can be transacted via either special resolution or ordinary resolution, as per the requirements of the Companies Act, 2013.
5. Explanatory statement
An explanatory statement needs to be annexed to the notice for conducting any special business at a company’s general meeting (Section 102). So, whenever a special business is to be transacted, the notice of the meeting must be accompanied by an explanatory statement to mention the details of the proposed decision.
However, in respect of an ordinary business, an explanatory statement need not be given. The detailed particulars in respect thereof may be given in the notice itself or may be given in the report of the Board.
6. Form MGT-14
As per company law, form MGT-14 must be filed with the Registrar of Companies within 30 days of a resolution being passed, especially if the resolution is a special resolution.
Note: The list of all such resolutions (whether board/ordinary/special) that are required to be filed with ROC is as laid down under Section 117(3) of the Companies Act along with Rule 24 of the Companies (Management and Administration) Rules, 2014. And as per these provisions, a copy of every special resolution passed by a company is to be submitted to ROC in Form MGT-14.
Instances of special resolution
Some matters that require a special resolution are:
- Issue of sweat equity shares
- Amendment of a company’s Articles of Association
- Change in the registered office of the company
- Buyback of shares
- Removal of an auditor from his office before the expiry of his tenure
- Reduction of share capital
- Loans and investments by the company
- Issue of debentures convertible into shares, wholly or partly
- Appointment of more than 15 Directors
- Conversion of Private Limited Company into One Person Company
- Change in the name of the company
- Issue of preference shares
- Alteration of Memorandum of Association
- Conversion of Section 8 company into any other kind
- Reappointment of Independent Director
- Approval of Shareholders for Struck off of Company
- Approval for winding up of a company
- A private offer of securities
- Issue of depository receipts in any of the foreign countries
Key takeaways
Resolutions are a way to put a stamp on proposals or decisions put forth by a company, once they are formalized. And from the above information, the basic line of distinction between ordinary and special resolution can be drawn based on the majority needed for approval. While only a simple majority of votes is needed to pass an ordinary resolution, a special resolution requires a supermajority of votes.
| Ordinary resolution | Special resolution |
| An ordinary resolution is passed by a simple majority, i.e., more than 50% majority. | A special resolution is passed by three times majority, i.e., 75% or more majority. |
| A copy of the ordinary resolution is to be filed with ROC in certain cases. | A copy of the special resolution must be filed with ROC in MGT-14. |
| Deals with ordinary or special business, as mentioned in company law requirements. | Deals with special business transactions. |
| The notice must be served. | The notice must be served and it should clearly indicate the intention to pass a special resolution. |
Hope the information provided in this blog proves helpful to you!
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