Circular Resolution

A Circular resolution is a governance mechanism that provides a way for the board of directors of an organisation to make a decision or take a specific action (resolution) without requiring a board meeting to happen, instead allowing the decision to be made via a written document rather than an in-person vote.

The Circular Resolution is an important tool to allow a board of directors to make decisions. The board would normally use one for uncontroversial and routine decisions that need to be passed and approved in between scheduled board meetings.

A Circular Resolution may also be known as a Circulating Resolution, Flying Minutes or Board Resolution.

Most decisions that might be passed using using a regular boardroom vote can be passed by using a written resolution that is circulated to all board members entitled to vote, hence the term circular resolution.

Before using circular resolutions you should check your organisations constitution and whether it allows the organisation’s board to utilise them.

In Australia organisations that are subject to the Australian Corporations 2001 (Cth) and have more than one director are provided with clear rules on circular resolutions by Section 248A (“replaceable rule”) which states:

Circulating resolutions of companies with more than 1 director

248A 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. Separate copies of a document may be used for signing by directors if the wording of the resolution and statement is identical in each copy. The resolution is passed when the last director signs."

What should a circular resolution contain?

A resolution will normally contain the background information on the resolution and the specific resolution you are seeking to pass.

For example, if your organisation is intending to start a social enterprise subsidiary the circulating resolution could include background information of the initiative, benefits of setting up the enterprise, costs associated with setup, market analysis and other information pertinent to the resolution. The proposed resolution to be passed (in this case, approving the setup of a subsidiary);

Everyone entitled to vote on the resolution will then need to sign the document. In the case of a director’s circulating resolution, instead of requiring all directors to sign, your company’s constitution may allow a circulating resolution to pass if a majority (50% or more) or special majority (usually, 75% or more) of directors sign the resolution stating that they are in favour of it. However, most of the time, all the directors will need to sign a circulating resolution. As a result, you should consider the requirements of your company’s constitution to determine who has to sign.

Can a directors report be approved by circular resolution?

The ability for a Director’s report to be approved by a circular resolution depends on the bylaws of the organisation and the laws that govern the organisation. Some organisations may permit the approval of a Director’s report through a circular resolution, while others may require that the report be approved during a meeting of the Board of Directors.

A Director’s report is a document that provides an overview of the activities and decisions of the Board of Directors over a specific period of time. It includes important information such as the financial statements, any notable events or transactions, and any other information that is relevant to the shareholders or members of the organisation.

If the bylaws of the organisation permit it, a Director’s report can be approved by a circular resolution. This would involve sending the report to all directors, along with instructions on how to indicate their approval or disapproval.

However, it’s important to note that while Circular resolutions can be an efficient way to pass routine matters, they shouldn’t be used for important or controversial matters, such as approving financial statements. Financial statements are a crucial document that should be carefully reviewed by all board members and should be seen as an opportunity for directors to discuss and ask questions about the organisations financial situation, for that reason, it’s better for Director’s report and any financial statement to be presented and discussed in person by the board members.

It’s always advisable to consult the bylaws of the organisation and applicable laws and regulations to understand the requirements for approving Director’s report and other important documents.

Who can circulate circular resolution?

A circular resolution, also known as a consent resolution, can be circulated by anyone who is authorized to do so by the bylaws or other governing documents of the organisation.

Typically, the Secretary or any other officer of the board designated by the board is the one responsible for circulating the circular resolution, and ensuring that it’s sent to all the eligible members of the board, including their email addresses, mail addresses, and any other contact information they have provided.

The person responsible for circulating the resolution should also make sure that the resolution complies with the bylaws’ requirements and any other legal requirements. They should also be responsible for counting the votes, recording the results and reporting it to the board.

It’s important to note that Circular resolutions should include clear instructions on how to indicate approval or disapproval and a deadline for voting. They should also include the required percentage of votes needed to pass the resolution, in compliance with the bylaws of the organisation.

Additionally, it’s always important to ensure that the process is fair and that all members of the board have been given a fair opportunity to vote and that their votes are recorded properly, regardless of their location or availability.

Can a director resign via circular resolution?

It depends on the bylaws or the governing documents of the organisation. A director may resign via a circular resolution if the bylaws or other governing documents of the organisation permit it. The circular resolution should include the Director’s resignation letter and the date on which it is to take effect.

In some cases, the bylaws or governing documents of the organisation may specify a particular format for the director’s resignation letter and require that it be submitted in writing to the Secretary or other designated officer of the organisation. The resignation letter should also be addressed to the organisation and include the date of resignation.

It’s important to note that once the resignation is accepted it should be reported in the next board meeting. Additionally, it’s important to ensure that the resignation process is fair and that the director is given an opportunity to express any concerns or complaints they may have before resigning.

In case the bylaws or governing documents don’t allow for a director to resign via circular resolution, the director would need to resign in a formal meeting of the board, and their resignation will be accepted and recorded in the meeting minutes.

It’s important to consult the bylaws or governing documents of the organisation to understand the requirements and processes for a director’s resignation.

What cannot be approved through circular resolution?

In the Australian context, certain matters cannot be approved through a circular resolution, due to the specific legal requirements and regulations.

Here are some examples of matters that cannot be approved through a circular resolution in Australia:

Removal of directors: The Corporations Act 2001 of Australia states that a director can only be removed by an ordinary resolution passed at a general meeting of the company. This cannot be done through a circular resolution.

Amending the constitution: The Corporations Act 2001 of Australia states that an alteration to a company’s constitution can only be made by a special resolution passed at a general meeting of the company.

Approval of financial statements: The Corporations Act 2001 of Australia requires that financial statements be approved at a general meeting of the company. Circular resolutions cannot be used to approve financial statements.

Appointment or removal of auditors: Under the Corporations Act 2001, the appointment or removal of auditors can only be done by an ordinary resolution passed at a general meeting of the company

Approval of substantial transactions: In the case of substantial transactions, such as the sale of a significant asset, the Corporations Act 2001 of Australia may require that the transaction be approved by a special resolution passed at a general meeting of the company

Share Issues: Circular resolution cannot be used for share issues.

It’s important to keep in mind that the Australian laws and regulations are complex and can change over time, it’s always advisable to consult with a legal advisor or relevant authorities to ensure the compliance with the laws and regulations when taking any action.

Does a resolution have to be signed by all directors?

The requirement for signatures on a circular resolution depends on the bylaws or other governing documents of the organisation. In some cases, all directors may be required to sign the resolution, while in other cases, only a certain percentage or supermajority of directors may be required to sign.

When all the directors are required to sign a resolution, it means that every member of the board must indicate their approval or disapproval of the resolution. This can be a high bar for some organisations, as it means that one dissenting vote can prevent the resolution from being passed.

On the other hand, if only a certain percentage or supermajority of directors are required to sign the resolution, it means that a specified number of directors must indicate their approval or disapproval of the resolution.

A majority vote is considered to be more than half of the total number of directors. For example, if an organisation has 10 directors, a majority would be 6 directors or more.

A supermajority vote is a larger percentage of directors that is required to pass a resolution. This could be 2/3, 3/4, or even more than that. For example, if an organisation has 10 directors, a 2/3 supermajority would be 7 or more directors in favor of the resolution.

It’s important to consult the bylaws or governing documents of the organisation to understand the signature requirements for circular resolutions. It’s also important to ensure that the process is fair and that all members of the board have been given an opportunity to vote and that their votes are recorded properly.

How do you write a Board of Directors Resolution?

Writing a Board of Directors resolution requires following a specific format and including all the relevant information. Here are the general steps to write a Board of Directors resolution:

Start with a title and date: Begin by writing the title of the resolution and the date on which it is being proposed.

Identify the purpose of the resolution: Clearly state the purpose of the resolution and what action is being proposed. This can include information about a new program, policy, or financial decision.

Provide background information: Provide the necessary background information and context for the resolution. This can include research, data, or other supporting documentation.

Propose the resolution: Clearly state the proposed resolution and the action to be taken. Use clear and specific language to avoid confusion.

Authorise specific actions: If the resolution requires specific actions to be taken, such as signing contracts or allocating funds, authorise the appropriate people to take those actions.

Include voting requirements: Indicate the voting requirements for the resolution, such as a majority or supermajority vote.

Include signatures: Include a section for signatures, indicating that the resolution has been passed by the required number of directors.

Keep a record: Keep a copy of the resolution on file for future reference and record-keeping.

It’s important to keep in mind that the resolution should be in compliance with the organisation’s bylaws and laws that govern the organisation, also, resolutions should be written in a formal and legal language, with proper punctuation and grammar, that is easy to understand, and it is better to review it by a legal advisor to ensure its compliance

How many directors are needed to pass a resolution?

The number of directors needed to pass a resolution depends on the bylaws of the organisation. In most cases, a majority of the directors present at a meeting where a quorum is present, can vote to pass a resolution. However, some organisations may require a higher percentage or super majority of the directors to pass certain types of resolution.

A majority is usually considered to be more than half of the total number of directors. For example, if an organisation has 10 directors, a majority would be 6 directors or more.

A super majority, on the other hand, is a larger percentage of directors that is required to pass a resolution. This could be 2/3, 3/4, or even more than that. For example, if an organisation has 10 directors, a 2/3 supermajority would be 7 or more directors in favour of the resolution.

It is important to consult the bylaws of the organisation to understand the exact requirements for passing a resolution.

Can directors pass written resolutions?

Yes, directors can pass written resolutions instead of meeting in person. This is also known as a “circulating resolution” or “consent resolution”. The process typically involves sending a written copy of the resolution to all directors, along with instructions on how to indicate their approval or disapproval.

The bylaws of the organisation would generally need to provide for the ability of directors to pass resolutions in this way and detail the requirements for a valid circulating resolution, such as the percentage of directors required to approve and the deadline for responding. A valid resolution is passed only if the required percentage of directors have approved it within the time frame stated in the bylaws or the resolution instructions.

It’s also important to note that, for a circulating resolution to be valid, it should be in compliance with the same formalities required for a meeting resolution, such as proper notice, Quorum, and the voting and recording procedures.

Overall, Circulating resolutions can be an efficient way to pass routine or non-controversial matters, but they shouldn’t be used for important or controversial matters, such as large financial transactions, where face-to-face discussion is important and it’s crucial to get all the stakeholders involved.

Do circular resolutions need to be unanimous?

The requirement for a unanimous vote on a circular resolution depends on the bylaws of the organisation. In some cases, a unanimous vote may be required for a circular resolution, while in other cases, a majority or supermajority vote may be sufficient.

A unanimous vote means that all directors must approve the resolution. This can be a high bar for some organisations, as it means that one dissenting vote can prevent the resolution from being passed.

A majority vote is considered to be more than half of the total number of directors. For example, if an organisation has 10 directors, a majority would be 6 directors or more.

A supermajority vote is a larger percentage of directors that is required to pass a resolution. This could be 2/3, 3/4, or even more than that. For example, if an organisation has 10 directors, a 2/3 supermajority would be 7 or more directors in favour of the resolution.

The bylaws of the organisation would need to be consulted to determine what level of support is required for a circular resolution to be passed.

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