Shareholder Resolution

Shareholder Resolution refers to the proposals submitted by the shareholders to the management of the publicly listed company, whereby the decision for the outcome of such resolution is arrived at by voting at the annual general meeting. Typically, the process followed is that shareholders propose a recommendation, a resolution to that effect is presented at the annual general meeting, and then it is voted upon.

It is important to note that all resolutions including special shareholder resolutions are non-binding. As in, they cannot be passed as a law. It is a representation of their concerns that are being voiced out to the board. They are advisory documents that may or may not have an effect on the changes made thereafter by the board.

• Shareholder resolutions involve suggestions for managing a publicly traded business, which is decided by a vote at the annual general meeting. Typically, shareholders suggest, then resolutions are submitted and voted on, followed by the annual meeting.
• The Board of Directors manages daily operations, but shareholders have a say in critical decisions requiring resolutions. Ordinary and extraordinary resolutions are the main categories, and unanimous resolutions may occasionally be considered.
• It aids the Board of Directors in making a significant choice to benefit the firm. Additionally, it affects the company's good reputation.

A shareholder resolution document means a formal resolution made by the shareholders towards a specific action to be taken by the management or the organization's board of directors. It may be highlighted that it is not binding on the organization. Shareholders pass resolutions for the proposal submitted by voting at the annual general meeting.

In common parlance, the term 'resolution' means a formal decision made at a meeting employing a voting system. Extending this understanding, shareholder resolution refers to the resolution by shareholders for a vote at the annual general meeting. Shareholders, holding a minimum specified percentage of voting rights in the organization, may propose to pass a resolution for aspects such as corporate governance, corporate social responsibility, etc. Practically, the management committee opposes this; thus, the requirement of voting for such a resolution comes. Specifically, for publicly held organizations in the United States, the Securities Exchange Commission ('SEC') regulates and manages submissions and the handling of shareholder resolutions.

The resolution to be passed may be ordinary or special, based on the business to be conducted or the decision to be made. Sometimes, a resolution passed at the meeting can be unanimous, whereby 100% give positive consent to the proposal. Points to be kept in mind are:

• Only specific categories of shareholders can propose a resolution;
• Restrictions on the number of resolutions that a shareholder can propose;
• Limit on words - Proposal to be made in the specified number of words;
• Resolution to be submitted before a specified number of days of the annual meeting.

Now that we understand the basics of a shareholder resolution document, let us discuss its purpose and how it can be beneficial for the company through the discussion below.

• Shareholders may go for a resolution motion to not only raise a moral flag but also for a requirement for change in company policies, practices and disclosures, and such. The main aim of the shareholder is not to file letters with the company but to engage with the company. Ultimately, it is also possible for the company to improve in some areas post considering the requests made for resolution. Here, it is essential to note that These resolutions are not at all binding on the organization's management.
• However, the board of directors may still undergo the process of passing a shareholder resolution and take that as advice for the matter/case under consideration. It assists the board of directors in achieving meaningful and effective decisions for the organization. It, simultaneously, also makes an impact on the positive image of the company. It shows that the investors and directors take the decision together, and the management accepts any positive change.

No standard format is prescribed for submitting the proposal by the shareholder for the passing of the motion at the annual general meeting. However, the subject matter relating to the proposal of a normal or special shareholder resolution shall consider the following points:

• Details of the shareholding and voting power held by the eligible shareholder along with verification document;
• Details of the case/issue for which the request is being made – business case, investor case, or a moral case at consideration;
• Detailed information about the proposal – concerning decisions affecting the public, such as corporate governance, corporate social responsibility activity, and environmental issues, as the case may be;
  • Important Note: The proposal being made should not pertain to decision-making of day-to-day business operations;
• I should include the rationale for the request being made. And also, any supporting documentation in support of the proposal being submitted.
• Information about any risks associated or any operational impact on account of acceptance of the request;
• Market-based information in support of the proposal, such as customer or competitor having adopted any policies concerning the proposal;
• Details of any statutory regulations in effect about the proposal;
• Benefit from being achieved, short term and long term, out of the acceptance of the request;

The organization's board of directors handles the organization's day-to-day business and management. However, the shareholders play a role when a significant decision concerning the direction and future of the company is concerned. Shareholders are expected to vote for such vital decisions by passing a resolution to that effect. Generally, there are two types of resolution: ordinary and special. However, there is a possibility of the third category of resolution coming into the picture at times, that is, unanimous resolution.

#1 - Ordinary Resolution

Ordinary resolution means the resolution being passed at the annual meeting with a simple majority of votes by the shareholders, present or in proxy, or by-poll. Most of the business carried out at the annual general meetings is by way of ordinary resolution. A few examples where ordinary resolution shall be enough for the passing of the motion are:

• Buyback of Shares
• Issuing shares under the employee stock option;
• Change of directors;
• Increasing authorized capital;
• Deciding on high-level executives pay;

#2 - Special Resolution

A special resolution is passed at the annual meeting with a majority of not less than 75% of votes by the shareholders, present or in proxy, or by-poll. Specific and significant cases regarding the business conduct to be carried out require a special resolution. Special instances in which a special resolution is required to be passed are:

• Any amendment to be carried out in the memorandum or article of association;
• Change in the name in which the company carries on business;
• Any reduction in share capital;
• Voluntary winding up of the company;
• Ratification of decisions taken by the directors;

However, the percentage of votes required to consider a resolution passed by the majority can vary from jurisdiction to jurisdiction.

#3 - Unanimous Resolution

Rare but not impossible, shareholders may pass a unanimous resolution for a decision to be passed at the annual general meeting. As the term suggests, a unanimous resolution means a resolution passed with 100% approval of the shareholders present, in person or proxy, for the decision to be considered at the annual meeting. In other words, it simply means that all the shareholders have positive consent towards the case under consideration for decision.

Now that we understand the basics, types, and other related factors of a shareholder resolution document, let us apply the theoretical knowledge to practical application through the examples below.

Example #1

ABC Corporation is a listed company and has been experiencing a slump in its revenue year-on-year for two consecutive years. However, the salaries for high-level executives were hiked by 20-30%.

A group of shareholders was not happy with this decision as the company’s performance does not accredit them with an incentive of a salary hike. Therefore, they drafted a resolution stating that the salaries remain the same for those executives.

They also stated that if the company’s performance is back on track in the upcoming year, they can very well increase their salaries and perks. Until then, their salaries shall remain the same.

This resolution was put to vote and a motion was passed. The salary hike was reverted and returned to pre-hike levels.

Example #2

Meta, the social media giant with applications such as Facebook, Instagram, and WhatsApp under its management, came into trouble in May 2023 when a group of shareholders including activist Mari Menne-Bell drafted a shareholder’s resolution against unethical practices in the company.

The group alleged that the company was involved in content management bias that caused communal hatred in India. The resolution will be up for a vote in the annual shareholders and general meeting on May 31.

While the board has tried to convince shareholders to vote against the resolution citing that they have always respected human rights and privacy, multiple activist groups and advisory companies have urged to vote for the resolution to be passed.

Shareholder Resolution and Board Resolution are both formal decisions made within a company, but they involve different levels of decision-making and are executed by different parties. Let's delve into the differences between a shareholder resolution document and a board resolution through the comparison below.

Shareholder Resolution

• A shareholder resolution is a formal decision made by the company's shareholders during a meeting. Shareholders are individuals or entities that hold ownership (shares) in the company.
• These resolutions are typically related to significant matters that require shareholder approval, as specified by the company's bylaws, articles of incorporation, or relevant laws and regulations.
• Shareholder resolutions are voted upon during general meetings or special meetings of shareholders.
• They often require a specific majority vote to be passed, which is typically outlined in the company's governing documents.
• Shareholders cast their votes based on their ownership percentage (number of shares they hold).
• Shareholder resolutions play a crucial role in determining the company's strategic direction and major decisions.
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Board Resolution

• A board resolution is a formal decision made by the company's board of directors, who are responsible for the management and strategic direction of the company.
• These resolutions are related to the company's day-to-day operations and management, as well as more significant matters that fall under the board's authority.
• Board resolutions cover a wide range of topics, such as financial decisions, operational policies, appointment of officers, and approval of contracts.
• Board resolutions are typically passed during meetings of the board of directors.
• They require a majority vote by the directors present at the meeting.
• Board resolutions guide the company's internal affairs, decision-making processes, and ongoing operations.
• The board of directors is accountable for the company's overall performance and adherence to its strategic goals.

This article has been a guide to what is a Shareholder Resolution. Here we explain its examples, format, and types, and compared it with board resolution. You can learn more about accounting from the following articles –

• Board Members
• Meaning of Articles of Incorporation
• Majority Shareholder
• Shareholders Agreement
• Commodity vs Equity