Resolution

What Is a Resolution? A Guide to Formal Corporate Decisions in South Africa

Every significant corporate action—from appointing a new CEO and approving the annual budget to changing the company's name or authorising a merger—is formalised and given legal effect through a resolution. A resolution is the formal, documented expression of a decision that has been voted on and approved by a decision-making body of a company, such as its Board of Directors or its shareholders.

It is the final, binding outcome of a successful Motion. While a motion is the proposal under debate, a resolution is the decision that has been made. Its primary purpose is to create a clear, unambiguous, and legally enforceable record of the company's will, ensuring that all stakeholders have certainty about the actions the company has committed to take.

Understanding the different types of resolutions and the strict legal requirements for passing them is a fundamental aspect of Corporate Governance in South Africa. This guide provides a comprehensive exploration of board resolutions and shareholder resolutions (both ordinary and special) as defined by the Companies Act, 71 of 2008.

The Legal Significance of a Resolution

A resolution is far more than just a record of an agreement; it is a legal instrument with significant power and importance.

  • The Formal Voice of the Company: A company, as a separate legal entity, cannot speak or act on its own. It does so through its human agents—its directors and shareholders. A resolution is the official "voice" of the company, the mechanism through which its will is expressed and its actions are authorised.

  • A Legally Binding Record: Once a resolution has been passed according to the correct procedures and accurately recorded in the Meeting Minutes, it becomes legally binding on the company. It represents a formal commitment that the company is obliged to honour.

  • Evidence of Due Process: A properly documented resolution serves as crucial evidence that a decision was made following the correct procedures and with the necessary authority. This is vital for demonstrating that the board and the company have acted in accordance with the Companies Act and have fulfilled their Fiduciary Duties.

Board Resolutions: The Decisions of the Directors

Under Section 66 of the Companies Act, the Board of Directors is responsible for managing the business and affairs of the company. Board resolutions are the primary tools used by the board to exercise this power and carry out its day-to-day governance responsibilities.

How Board Resolutions are Passed

At a properly convened Board Meeting where a Quorum is present, a board resolution is typically passed by a simple majority vote of the directors present. The company’s Memorandum of Incorporation (MOI) can, however, stipulate a higher voting threshold for certain or all board decisions.

Written Resolutions ("Round-Robin Resolutions") - Section 74

The Companies Act provides an efficient mechanism for boards to make decisions without the need to convene a formal meeting. This is known as a written or "round-robin" resolution.

  • Procedure: Under Section 74, a written resolution must be submitted to all directors for their consideration. The resolution is passed when it has been signed by a majority of the directors.

  • Effectiveness: A written resolution has the same legal effect as if it had been passed at a formal meeting. This process is invaluable for making timely decisions on urgent or routine matters that do not require extensive debate. The efficiency and security of this process are greatly enhanced by technologies like E-Signature Integration within a board portal.

Common Examples of Board Resolutions

  • Appointing the Chief Executive Officer (CEO).

  • Approving the annual budget and business plan.

  • Authorising the opening of a new corporate bank account.

  • Entering into significant contracts or agreements.

  • Delegating specific authorities to a Board Committee.

Shareholder Resolutions: The Voice of the Owners

While the board manages the company, the Companies Act reserves certain fundamental decisions for the shareholders, as the ultimate owners of the company. These decisions are made by passing shareholder resolutions at a properly convened shareholders' meeting (such as an AGM). The Act defines two distinct types of shareholder resolutions, each with a different voting threshold.

The Ordinary Resolution (Section 65(7))

An ordinary resolution is the default type of resolution for matters requiring a shareholder vote.

  • Voting Threshold: It is adopted with the support of more than 50% of the voting rights exercised on the resolution.

  • When it is Used: It is used for any matter that shareholders have the right to decide, unless the Companies Act or the company’s MOI explicitly requires a special resolution.

  • Common Examples:

    • Electing or removing directors.

    • Appointing the company's external auditor for the coming year.

    • Approving, on a non-binding advisory basis, the company's remuneration policy and implementation report.

The Special Resolution (Section 65(9) & (11))

A special resolution is required for matters that are of a more fundamental or significant nature, as they often alter the company’s constitution, structure, or the rights of its shareholders.

  • Voting Threshold: It must be adopted with the support of at least 75% of the voting rights exercised on the resolution. A company's MOI can specify a different percentage, but it must maintain at least a 10-percentage-point margin between the requirements for an ordinary and a special resolution.

  • When it is Required: The Companies Act specifies a number of key corporate actions that must be approved by a special resolution. These include:

    • Amending the company’s Memorandum of Incorporation (MOI).

    • Changing the company’s name.

    • Authorising the board to provide financial assistance to a director or a related person or company.

    • Approving the remuneration of directors for their services as directors.

    • Authorising the board to issue shares to a director or a related person.

    • Approving the acquisition by the company of its own shares from a director.

    • Approving a major disposal of all or the greater part of the company's assets or undertaking.

    • Approving a fundamental transaction, such as a scheme of arrangement or a merger.

    • Placing the company into voluntary winding-up (liquidation).

The Critical Role of Drafting and Record-Keeping

The power of a resolution is matched by the need for precision in its creation and recording.

The Art of Drafting a Resolution

A resolution must be drafted with absolute clarity and precision. Ambiguous or poorly worded resolutions can lead to confusion, disputes, and significant legal challenges. The resolution should state clearly and concisely the action that has been approved, leaving no room for misinterpretation. The Company Secretary plays a crucial role in ensuring that all resolutions are drafted in a legally sound and unambiguous manner.

Recording in the Meeting Minutes

Once a resolution has been passed, it must be recorded verbatim in the Meeting Minutes of the meeting at which it was adopted. The minutes must also record the outcome of the vote. This creates the final, official, and legally binding record of the decision, which is then signed by the Chairman of the Board as a true and accurate account.

How a Board Portal Streamlines the Resolution Lifecycle

The entire process of drafting, proposing, voting on, and archiving resolutions is significantly enhanced by a secure board portal like BoardCloud.

  • Drafting and Circulation: Proposed resolutions can be drafted and securely included as part of the Board Pack. This allows directors to review the exact wording of a proposed resolution well in advance of the meeting.

  • Managing Written ("Round-Robin") Resolutions: This is a key area of efficiency. A board portal provides a secure, streamlined, and fully auditable workflow for circulating a written resolution for E-Signature Integration. The platform tracks who has signed and automatically notifies the Company Secretary once the required majority has been reached, turning a process that could take weeks into one that can take hours.

  • Voting and Capture: Integrated voting tools can facilitate a formal, secure vote on a resolution during a hybrid or virtual meeting. The exact result is automatically tallied and can be directly imported into the draft minutes, ensuring absolute accuracy.

  • The Resolution Register: A board portal acts as a central, searchable "resolution register." It creates a single source of truth for all the key decisions the company has ever made, providing an invaluable and permanent corporate memory that is easily accessible for audit and review purposes.

Frequently Asked Questions (FAQ)

What is the difference between a Motion and a resolution?

A Motion is the proposal that is put forward for consideration and debate during a meeting. A resolution is the final, binding decision that results after a motion has been successfully voted on and passed by the required majority.

Can a resolution be reversed or cancelled?

Yes. The same body that passed the resolution (either the board or the shareholders) can pass a new resolution at a subsequent meeting to rescind (cancel) or amend the previous one. This must, of course, be done by following the correct procedures and achieving the required voting threshold.

What happens if a special resolution is required but only an ordinary resolution is passed?

If the Companies Act requires a special resolution for a particular action, and it is only approved by an ordinary resolution (i.e., more than 50% but less than 75%), then the action has not been validly authorised. The purported decision is legally void and can be challenged and set aside.

Where are a company's resolutions kept?

All resolutions must be formally and accurately recorded in the official Meeting Minutes. These minutes form part of the company’s permanent legal records and must be securely kept, as mandated by the Companies Act.

Conclusion: The Final Word in Corporate Action

The resolution is the ultimate expression of a company's decision-making power. It is the final word that transforms debate into direction and intention into action. In the highly regulated South African corporate environment, a thorough understanding of the different types of resolutions—board, ordinary, and special—and the strict legal requirements for each is absolutely essential for every director, shareholder, and governance professional. The meticulous drafting, proper passing, and accurate recording of resolutions are not mere administrative formalities; they are the fundamental practices that ensure legal compliance, uphold good governance, and enable the effective and defensible execution of a company's will.