Shareholder decisions in a private company FAQs

12 FAQs people ask about shareholder decisions in a private company.

1. How do shareholders make decisions in a private company?
2. Do we have to appoint a chairperson for each shareholders' meeting?
3. What does the chairperson do in shareholders' meetings?
4. Do we need to hold shareholders' meetings?
5. How are shareholders' written resolutions passed?
6. How are shareholders' meetings organised?
7. Can we send and receive shareholders' meeting documents electronically?
8. Is a shareholders' meeting valid if some of the members are absent?
9. How many votes are required at a shareholders' meeting for a decision to be passed?
10. Can a shareholder appoint a proxy to attend a shareholders' meeting so they do not have to attend?
11. What can we do as shareholders if we are unhappy with the board and want a shareholders' meeting to be held?
12. What happens after a shareholder resolution has been passed?

1. How do shareholders make decisions in a private company?

Shareholders make decisions by passing resolutions. An ordinary resolution requires majority approval (eg over 50%) and a special resolution requires 75% approval.

The Companies Act 2006, your articles of association, and any shareholders agreement, can each specify whether the shareholders need to pass an 'ordinary resolution' or a 'special resolution'. If they don't, an ordinary resolution is required, by default.

The way in which shareholder votes are counted depends on the way in which a resolution is passed. Shareholder resolutions can be passed either by way of a written resolution, or at a meeting of the shareholders (known as a ‘general meeting’). As a general rule, written resolutions are quicker and easier to pass than general meetings, which require a very prescribed process to be followed.

On a written resolution, all shareholders who are eligible to vote usually have one vote in respect of each share they hold. For further guidance, see 5. On a resolution passed at a meeting, only votes by those present at the meeting are counted. The voting rights of those not present at the meeting are disregarded for the purposes of calculating whether the threshold to pass a resolution has been reached. For further guidance on the practical effect this can have, see 9.

Back to top

2. Do we have to appoint a chairperson for each shareholders' meeting?

This depends on what your company’s articles of association say.

Many SME and start-up companies have the default model articles of association. These set out that a chairperson must be appointed to chair each meeting of the shareholders. If the board of directors of a company has already appointed a chairperson of the board, then the usual custom and practice is that they also chair shareholder meetings (even if they are not a shareholder) unless they are unwilling.

The model articles also say that if the board has not appointed a chairperson generally (or it has, but the chairperson is unwilling to chair it or is not present at the meeting within ten minutes after it is supposed to start), the directors present must choose one of their number who is willing to act as chairperson. In default, the shareholders at the meeting appoint a chairperson.

If your company does not have the model articles, you should check them to see what the procedure is for appointing a chairperson at a general meeting.

If the articles of association are silent on this point, the shareholders at the meeting must choose one of their number to chair the meeting.

Back to top

3. What does the chairperson do in shareholders' meetings?

The chairperson's main tasks are:

• organising and presiding over the meeting
• ensuring that proper notice and pre-meeting information is supplied
• ensuring that meetings are properly conducted in accordance with the law and best practice
• ensuring that proceedings and decisions are properly recorded

At the meeting they may have a casting vote, depending on what the articles of association provide. Note, however, that the default model articles of association do not give the chair a casting vote at a general meeting.

Under most companies' articles, voting at a general meeting of the shareholders is initially by a show of hands, which means each shareholder present at the meeting has one vote. However, the chairperson usually also has power to call for a poll, ie to require a fresh vote on an issue, that takes into account the number of shares held by each shareholder, rather than a vote on a show of hands.

This can be important if shareholders have appointed multiple proxies to attend and vote on their behalf (they can appoint as many proxies as they have shares), as each proxy usually has one vote on a show of hands. This can mean a shareholder can cast more votes on a show of hands if they appoint several proxies, than if they went to the meeting themselves. If the chairperson thinks the result might be different if voting is per number of shares held (ie by poll), they usually have a duty to call for a poll.

Back to top

4. Do we need to hold shareholders' meetings?

Private companies are free to pass written shareholder resolutions by default, and are not otherwise required to hold an annual general meeting of the shareholders unless their articles of association specifically require them to. This has made shareholder general meetings much less common.

However, from time to time the directors may find that a decision needs to be made that has to be referred back to a shareholder meeting - usually because the Companies Act, the company's articles, or some outside agreement such as a shareholders' agreement says they must. For example, the Act says that a decision to remove a director from office or remove a company’s auditor from office can only be made at a general meeting.

Alternatively, the directors might conclude that a contentious or difficult decision is better reached at a meeting, where debate and discussion can be more effectively facilitated and managed.

Otherwise, for most shareholder decisions in start-ups and SMEs, circulating a written resolution will generally be quicker and easier than calling a general meeting.

Back to top

5. How are shareholders' written resolutions passed?

Shareholders of a private company can make any decision using a 'written resolution in writing' (subject to two exceptions - see below) instead of holding a shareholders' meeting. They must follow the procedure in the Companies Act 2006. 

The two exceptions are resolutions to remove a director or an auditor from office. These must be passed at meetings because the Companies Act gives the director or auditor the right to state, at a meeting, why they should not be removed. There are also special rules governing the notice to be given of the meeting. Before taking any decision to remove a director or auditor from office, you should take advice. 

Otherwise, a private company can use a written resolution to make any shareholder decision and it will usually be quicker and easier than holding a general meeting. A written resolution may be proposed by the board or by the shareholders, although it is usually proposed by the board. The company must send or submit a copy of the proposed resolution to every shareholder (and to the auditor, if any) together with a statement telling the shareholders how to indicate their agreement to the resolution and the date by which it will lapse if not agreed to by then.

If the written resolution put to the shareholders is an ordinary resolution (see 8), the percentage vote required is a simple majority of the total voting rights of the shareholders. For a special resolution it is not less than 75% of the total voting rights of the shareholders.

You should bear in mind that the percentages required to pass resolutions in writing are percentages of the total voting rights, whereas for meetings, they are percentages of the votes cast at the meeting. This can mean putting a decision to shareholders as a written resolution can result in a different outcome compared to the same resolution put to shareholders at a meeting - where the votes of shareholders who are not represented or who do not vote are not counted.

Each shareholder has 28 days, or any other period specified in the articles of association, to indicate their agreement to the written resolution. They agree either:

• By returning a signed hard copy of the resolution.
• If agreement is given electronically, by confirming the identity of the sender in any manner that has been specified by the company. If the company has not specified how the shareholder can confirm their identity, the document must be accompanied by a statement of the shareholder's identity, and the company must have no reason to doubt the statement.

If the requisite majority have not signified their approval within the period specified, the resolution will lapse.

Shareholders holding at least 5% (or any lower percentage specified in the company's articles) of the total voting rights can require the directors to circulate a proposed written resolution, provided they deposit "a sum reasonably sufficient to meet its expenses in doing so". If the company is going to circulate the written resolution by email, that is likely to be a small sum. The directors must then circulate the written resolution within 21 days. In circumstances where a shareholder is seeking to require circulation of a shareholder resolution and the directors are unsure of how to proceed, advice should be sought. 

Written resolutions can be sent to shareholders electronically, provided the rules in the 2006 Act relating to electronic communications are followed (see 7). This might be by email, or by any electronic signature platform which the shareholders have agreed to use.

Back to top

6. How are shareholder meetings organised?

The company must send shareholders, directors (and any auditors) a notice in writing, stating the date, place and time of the meeting, and setting out the rights of shareholders to appoint proxies - ie to appoint someone to go along to the shareholders' meeting in their place (see 10).

The notice period to be given is 14 days, although this may be increased by the articles of association. However, if the holders of shares representing 90% of the nominal value of the company's voting shares (or any higher percentage specified in the articles, to a maximum of 95%) agree, the meeting can be held at shorter notice.

The notice can be given to a shareholder electronically, including by making it available on a website, provided the company and the shareholder agree it can, and the other conditions in the Companies Act 2006 are met - see 7.

Back to top

7. Can we send and receive shareholder meeting documents electronically?

Under the Companies Act 2006, any document or information that the Act says must (or may) be sent by a company to its shareholders, and vice versa, can be sent or submitted electronically rather than in hard copy format, provided certain conditions are satisfied.

This covers documents like notices of meetings, shareholder resolutions in writing in lieu of a meeting, annual report and accounts, requests to convene a shareholders' meeting, invitations to appoint proxies and proxy forms.

Documents or information can, for example, be emailed (the most common method), faxed or texted. In the case of a company providing documents or information to its shareholders, they can also be made available 'via a website', ie the company posts it on a website and notifies the shareholder it is there - again, provided certain conditions are met.

Usually, each shareholder and the company must expressly consent to receiving documents or information electronically, and must provide the other with an email or other electronic address expressly for that purpose. They will usually agree which documents or information can be sent electronically, and the means of electronic communication(s) to be used, eg email and making available 'via a website'.

However, if the company is authorised to do so, either in its articles or by a resolution of the shareholders, it can send a shareholder a written request asking them to agree to receive all or certain documents or information via a website. The request must contain certain other specific information. If the shareholder has not responded within 28 days they are deemed to have agreed that those documents and/or information can be sent to them 'via a website'.

If a company sends out notice of a shareholders' meeting, or proxy documents, with an electronic address on, such as an email address or phone number, it is deemed to have agreed to receive documents or information relating to the meeting, or in relation to proxies at that meeting, from shareholders electronically, at that address, unless it says otherwise in the notice or proxy documents. Companies should check their notices and proxy documents to ensure they do not inadvertently include an electronic address.

Finally, a shareholder who has agreed to receive documents electronically (including if they are deemed to have agreed - see above) can revoke their agreement at any time. A shareholder can also require the company to send a hard copy version of any document made available electronically, free of charge, within 21 days.

Back to top

8. Is a shareholders' meeting valid if some of the members are absent?

The quorum at shareholders' meetings - the minimum number of shareholders required to be present for decisions taken to be valid and bind those who are not present - is set out in the Companies Act (although the articles of association can vary the rules in the Act). If the Act applies then unless there is only one member, two members present in person (including a person sent to represent a corporate shareholder) or by proxy (see 10) are a quorum.

If a quorum is not reached within a certain time, articles of association often provide that the chairperson must adjourn the meeting, perhaps for a week or fortnight, or to another time agreed by the directors or the shareholders.

The default model articles of association require the chairperson to adjourn any meeting where a quorum is not present, either within a certain time or during the meeting. When adjourning the meeting, the chairperson must either specify the date and time it will be reconvened or leave the decision to the directors.

If a shareholder refuses to attend a meeting, for example in order to prevent there being a quorum, a director or shareholder might attempt to obtain a court order to hold the meeting. However, if the shareholders have deliberately structured the company so they can block each other if a meeting is called, the court will refuse to intervene, and in such circumstances you should seek separate legal advice in any event. 

Back to top

9. How many votes are required at a shareholders' meeting for a decision to be passed?

At shareholder meetings, most decisions ('ordinary resolutions') are passed if agreed to by a majority of the vote cast, but certain decisions ('special resolutions') require 75% or more of the votes cast.

Votes on resolutions are usually taken by a show of hands, so that each member present in person or by proxy has one vote, regardless of how many shares they hold. However, if a poll is demanded (and the articles will specify who can demand a poll in each particular company) votes are recorded according to the number of shares the voter represents.

Which decisions need to be passed as ordinary resolutions and which as special resolutions depends on the Companies Act, your articles of association and sometimes, an external agreement such as a shareholders' agreement. Normally resolutions to change a company's name or articles of association are among those that require a special resolution.

Be aware that if you ask the shareholders to agree to a resolution in writing rather than hold a meeting, the rules about counting votes to determine whether a resolution is passed are slightly different, and the two methods of passing resolutions can result in different outcomes if a vote is contentious- see 5.

Back to top

10. Can a shareholder appoint a proxy to attend a shareholders' meeting so they do not have to attend?

Shareholders are entitled to appoint one or more 'proxies' (provided the number of proxies does not exceed the number of shares they hold), who need not be shareholders in their own right, to represent them at a shareholder meeting, instead of going themselves. A company cannot stop members from doing this - their right to do so overrides anything in the company's articles of association.

The shareholder has to notify the company that they are appointing a proxy by filing a form of appointment at the registered office - usually 48 hours before the meeting. Your articles of association will set out any additional requirements.

Proxies are allowed to vote on a show of hands (when each shareholder usually has one vote, irrespective of the number of shares they hold - see 9) as well as on a poll or a demand for a poll. So if the shareholder has, say, ten shares they can theoretically send ten proxies, each of whom will have one vote - even though the shareholder would only have had one vote on a show of hands if they had gone to the meeting themselves. In those circumstances, the chairperson of the meeting will usually call a 'poll' (when all shareholders and their proxies vote according to the number of shares they hold, or that they represent at the meeting). This ensures the vote is not unfairly skewed by a shareholder sending multiple proxies for each share held.

Corporate shareholders can either appoint proxies or send a 'corporate representative' to meetings instead. They can appoint a corporate representative by a resolution of their board (the corporate representative usually takes a copy of the relevant board minute certified by a director or the secretary of the corporate shareholder, with them to the meeting, as proof of their appointment) and do not have to file anything with the company beforehand, as they do with a proxy. A corporate representative is treated as if they were a shareholder present at the meeting in their own right and can therefore vote on a show of hands, a poll and a demand for a poll.

Back to top

11. What can we do as shareholders if we are unhappy with the board and want a shareholders' meeting to be held?

The kinds of action shareholders could take include:

• Shareholders with at least 5% of the company's voting capital can serve a 'request' on the company at its registered office requiring the board to call a shareholders' meeting (and to circulate a statement to go with such proposed resolution). If the board fails to call a general meeting following such a request, the shareholders themselves can do so. However, any aggrieved shareholders should think carefully about their reasons for calling any shareholders meetings. Unless they hold more than 50% of the voting rights between them, they are unlikely to be able to pass any resolution at the subsequent meeting.
• At any shareholders meeting, shareholders can attempt to dismiss a director or appoint new directors to the board, in the hope that they will secure a majority on the board. Alternatively they might try to pass a resolution limiting the power of the board to make certain decisions.
• Shareholders can take legal action in the courts if they feel the directors are acting improperly.
• Minority shareholders can take action if they feel that their rights are being unfairly prejudiced by the majority.

If a shareholder or boardroom dispute looks likely, take advice immediately. 

Back to top

12. What happens after a shareholder resolution has been passed?

Copies of all special resolutions must be signed by a director or the secretary (if any) of the company and filed at Companies House within 15 days of being passed.

Copies of ordinary resolutions do not normally have to be filed at Companies House. Certain limited exceptions exist, including ordinary resolutions relating to making documents available on a website (see 7). If an ordinary resolution needs to be filed, the 15-day time limit applies.

A Companies House form may need to be filed in certain circumstances - for example, if a director has been appointed or removed from office.

Back to top