When a company needs to make an important decision, it may not be enough for the directors or management to simply agree on what should be done. Depending on the nature of the decision, the members (shareholders) of the company may need to formally approve it by passing a resolution.
Two of the most important types of resolutions recognised under Nigerian law are ordinary resolutions and special resolutions. Although both are formal decisions of a company’s members, they differ significantly in their voting requirements, notice requirements, and the types of corporate decisions for which they are used.
Understanding the difference between an ordinary and special resolution is important for shareholders, directors, company secretaries, and business owners because using the wrong type of resolution can affect the validity of a decision.
Key takeaways
- An ordinary resolution requires a simple majority, which means more than 50% of the votes cast.
- A special resolution requires at least 75% of the votes cast and generally requires 21 days’ notice specifying that it will be proposed as a special resolution.
- The type of resolution required depends on CAMA 2020 and the company’s Articles of Association.
- A special resolution must be filed with the Commission within 15 days. An ordinary resolution is generally not filed with the CAC, except for an increase in share capital.
- A private company can pass a written resolution if all members entitled to attend and vote sign it.
Table of Contents
What is a company resolution?
A resolution is a formal decision passed by the members of a company at a general meeting in accordance with the Companies and Allied Matters Act (CAMA), 2020 and the company’s Articles of Association. CAMA 2020 recognises ordinary and special resolutions and sets out the voting thresholds applicable to each.
Thus, a resolution is how shareholders formally approve certain decisions that require their consent.
What is an ordinary resolution?
An ordinary resolution is a resolution passed by a simple majority of the votes cast by members who are entitled to vote, and who vote in person or by proxy at a general meeting. This is provided under Section 258(1) of CAMA 2020.
A simple majority generally means that votes in favour must be more than votes against the matter under deliberation. This entails a decision reached by more than 50% (more than half) of the votes cast by members at the general meeting.
Example/Illustration: Suppose a company has a general meeting where 100 votes are cast on a matter, and 60 votes are in favour while 40 votes are against, the resolution passes as an ordinary resolution because the votes in favour of the matter constitute a simple majority (more than 50%) of the votes cast.
See Also: Single Director Company in Nigeria: Advantages and Disadvantages
What is a special resolution?
Under section 258(2) of CAMA 2020, a special resolution must be passed by at least three-fourths (3/4 or 75%) of the votes cast by members entitled to vote, and voting in person or by proxy at a general meeting. The meeting must also have been properly convened with 21 days’ notice specifying the intention to propose the resolution as a special resolution.
Example/Illustration: If 100 votes are cast on a matter requiring a special resolution, and 80 votes are in favour while 20 are against the motion, the resolution passes as a special resolution because at least 75% of the votes cast are in favour of the matter under deliberation.
However, if only 70 votes are in favour and 30 are against, the special resolution fails because the required 75% threshold has not been met.
Ordinary vs Special Resolution: key Differences
The major differences between an ordinary and special resolution include the following:
| S/N | ORDINARY RESOLUTION | SPECIAL RESOLUTION |
|---|---|---|
| 1 | Requires a simple majority of votes cast. | Requires at least 75% of votes cast. |
| 2 | CAMA does not impose the 21-day special notice requirement applicable to special resolutions. | Generally requires 21 days’ notice specifying the intention to propose it as a special resolution. |
| 3 | Used where CAMA or the Articles do not specifically require a special resolution | Used where CAMA or the Articles specifically require a special resolution. |
| 4 | It is not required to be filed with the CAC EXCEPT for an ordinary resolution for an increase in share capital. | It is required to be filed with the Commission within 15 days of passing the resolution. |
It is important to note that the distinction is not simply that an ordinary resolution is for small matters and a special resolution is for big matters. The correct type of resolution depends on what CAMA and the Company’s Articles of Association require for the particular decision.
When is an ordinary resolution used?
An ordinary resolution may be required for a range of corporate decisions where the law does not prescribe a special resolution, or when the law requires the passing of a resolution by the company without specifically mentioning the means. It is mostly used for business such as: removal of directors, adoption of minutes, appointment of directors, removal of auditors, and an increase of share capital.
When is a special resolution used?
A special resolution is generally required for decisions that have a more fundamental effect on the company’s structure, constitution, or legal status. Examples of resolutions that need special resolution are: change of the company’s name, alteration of objects, reduction of share capital, re-registration of a company from one type to another, and voluntary winding up.
Can a private company pass a written resolution?
Yes. CAMA 2020 provides an important flexibility for private companies. A written resolution signed by all members entitled to attend and vote can be valid and effective as though it had been passed at a general meeting. This can make corporate decision-making considerably easier for private companies, particularly where the shareholders are few and all are in agreement.
What happens if the wrong resolution is used?
Using an ordinary resolution where CAMA or the company’s Articles require a special resolution can create a serious corporate governance problem. The decision may be challenged because the company has failed to comply with the procedure prescribed by law.
In fact, CAMA recognises the protection of members against a company purporting to do by ordinary resolution something that is required by the Act or Articles to be done by special resolution. This is why companies should not assume that every shareholder decision can be approved by an ordinary resolution.
Frequently asked questions (FAQs)
What percentage is required for an ordinary resolution in Nigeria?
An ordinary resolution requires a simple majority of the votes cast by members entitled to vote and voting in person or by proxy.
What percentage is required for a special resolution in Nigeria?
A special resolution requires at least 75% of the votes cast by members entitled to vote and voting in person or by proxy, subject to the applicable statutory notice requirements.
How much notice is required for a special resolution?
Generally, members must receive 21 days’ notice, and the notice must specify the intention to propose the resolution as a special resolution. CAMA provides a mechanism for shorter notice where the prescribed conditions are satisfied.
Can an ordinary resolution be used instead of a special resolution?
Not where CAMA or the company’s Articles expressly require the matter to be approved by special resolution. Using an ordinary resolution in such circumstances may render the decision procedurally defective.
Conclusion
The difference between an ordinary and special resolution primarily comes down to the voting threshold, notice requirements, and the nature of the corporate decision involved. An ordinary resolution requires a simple majority, while a special resolution requires at least 75% of the votes cast and generally requires 21 days’ notice specifying that a special resolution will be proposed.
For companies in Nigeria, however, the most important point is not to assume which resolution is appropriate. CAMA 2020 and the company’s Articles of Association should be checked to determine the correct procedure for the particular decision to be reached.
A properly drafted resolution helps ensure that the company’s decisions are legally valid, properly documented, and capable of being relied upon by shareholders, directors, regulators, banks, investors, and other stakeholders.
Do you need an expert to help you prepare and file company resolutions, or ensure that your company complies with the requirements of CAMA?
Whether you need assistance determining whether an ordinary or special resolution is required, preparing the appropriate resolution, documenting shareholder decisions, or handling the necessary CAC filings, getting the process right can help protect your company from avoidable compliance issues. With our years of experience in corporate advisory, business setup, and regulatory compliance, we make the process seamless so you can focus on running your business.
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Disclaimer: This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
For specific legal advice, contact us.
WRITTEN BY:
NWOKOCHA, ANNASTECIA LL.B., B.L.
LEGAL ASSOCIATE
TCORPORATE LEGAL ADVISORY