In this insight, we explore circulating resolutions, a mechanism through which a company, by way of its directors and members, can make decisions.
What is a Circulating Resolution?
A circulating resolution is a written document setting out a proposed resolution of a company, and if it is signed by all those who are entitled to vote, then such resolution is passed (without having held a meeting). Resolutions provide the means through which a company formally logs in writing the decisions it makes during director and member meetings, and a company makes its decisions by way of passing resolutions at such meetings. However, a company may be able to pass a resolution to make decisions without holding a meeting.
How do Circulating Resolutions apply to Directors?
Section 248A (“replaceable rule”)
Section 248A of the Corporation Act 2001 (Cth) (the Act) applies to circulating resolutions of companies with more than one director, and subsection (1) states:
“The directors of a company may pass a resolution without a directors’ meeting being held if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document.”
Constitution
It is important to note however that if the circulating resolution mechanism is to be utilised by directors, the company’s constitution should first be considered to ensure that circulating resolutions can be made and relied upon.
Signing Separate Copies
Section 248A(2) of the Act states that directors may sign separate copies of a circulating resolution, as long as the wording of the resolution and the wording of the statement is identical on each document.
When is a Circulating Resolution passed?
Section 248A(3) of the Act states that the circulating resolution passes when the last director signs it.
How do Circulating Resolutions apply to Members?
Section 249A
Section 249A of the Act applies to circulating resolutions of proprietary (private) companies with more than 1 member, and subsection (2) states:
“A company may pass a resolution without a general meeting being held if all the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document. Each member of a joint membership must sign.”
Constitution and Shareholders’ Agreement
It is important to note however that if the circulating resolution mechanism is to be utilised by members, the company’s constitution and shareholders’ agreement (if applicable) should first be considered to ensure that circulating resolutions can be made and relied upon.
Signing Separate Copies
Section 249A(3) of the Act states that members may sign separate copies of a circulating resolution, as long as the wording of the resolution and the wording of the statement is identical on each document.
When is a Circulating Resolution passed?
Section 249A(4) of the Act states that the circulating resolution is passed when the last member signs it.
Additional Requirements
A circulating resolution for members has further legal requirements that must be satisfied before it can be passed. Section 249A(5) of the Act states that:
- members must be given information or a document that relates to the circulating resolution (section 249A(5)(a));
- a copy of a notice of meeting to consider the circulating resolution must be lodged with ASIC (section 249A(5)(b)); and
- a copy of a document that accompanies a notice of meeting to consider the resolution must be lodged (section 249A(5)(c)).
Furthermore, in accordance with section 249A(7) of the Act, if the circulating resolution is passed by the members, it must be recorded in the company’s minute books.
Limitations of Circulating Resolutions
There are various limitations to the circulating resolution mechanism including:
- Must be signed by all: Circulating resolutions are only passed if they are signed by all those who are entitled to vote (as opposed to passing a resolution at a meeting by a majority (50% or more) or special majority (usually, 75% or more) voting in favour of it).
- Constitution: The provisions under section 248A of the Act relating to directors’ usage of circulating resolutions are part of the Act’s “replaceable rules”, which are a default set of provisions that companies fall back on if they do not have a company constitution.
In practice, it is highly unlikely that a company will not have an approved constitution in place. Therefore, a company that does have a constitution in place, can expressly remove its directors’ ability to use circulating resolutions altogether and displace the aforementioned “replaceable rules”.
- Shareholder’s agreement: In the case of members, circulating resolutions are only passed subject to any relevant restrictions imposed by the shareholders’ agreement (if applicable).
- Public companies restricted: Section 249A of the Act does not apply to public companies. Further, the circulating resolution mechanism is only available to public companies in instances where, under the Act, holding an actual shareholders’ meeting is not a requirement.
The benefits of Circulating Resolutions
There are various benefits to utilising the circulating resolution mechanism including:
- Practical convenience: Circulating resolutions are extremely convenient in circumstances where it is impractical to hold a meeting.
The mechanism therefore provides a useful, flexible and effective means of streamlining corporate processes to assist in ensuring smooth company operations.
Even though they are a “replaceable rule” pursuant to section 248A of the Act, in practice and particularly in the case of smaller companies, directors are likely to include a circulating resolution provision in the company constitution (instead of removing it).
- Modifiability: Circulating resolutions can be modified within the company constitution in any way that the company sees fit.
For example, a constitution may, by way of modification to the “replaceable rule” in section 248A(3) of the Act (which requires the last director to sign a circulating resolution before it can be passed), provide that a director’s circulating resolution may only require a majority of (not all) directors to sign it, for it to pass.
