Below I’ll explain the rights of a shareholder with over 50% shares based on the Corporations Act.
And I am going to use the term shareholder because its more widely known than ‘member’ which is used in the Corporations Act 2001.
So, here’s what a shareholder over 50% of shares can do.
If company directors fail to call a general meeting 21 days after a request from shareholders with 5% of voting rights, shareholders with more than 50% of the votes of all shareholders may call and arrange to hold a general meeting.
A resolution is a way that a company can note shareholder decisions.
An ordinary resolution is passed if there are a majority of the votes cast by shareholders of the company entitled to vote on the resolution at the meeting either in person or by proxy (if proxies are allowed)
And, a majority means there are more than 50% in favour to pass the resolution.
Here are some examples of decisions that may only need an ordinary resolution:
Contrast ordinary resolutions to special resolutions below, one clear difference is that 75% or more votes are needed to pass a special resolution compared to the 51% for ordinary resolutions.
Certain changes will need special resolution like changing a company’s name, winding up the company or changing the company’s type. Pretty major decisions right?
We won’t go through the processes that need to occur before voting on these or passing special resolutions here.
A special resolution requires at least 75% of the votes cast by shareholders of the company eligible to vote on the resolution and who vote at the meeting in person or by proxy (if proxies are allowed).
Now, you can of course set other rights out in a shareholder agreement for majority shareholders, that is, shareholders with over 50% voting rights.
The catch is, you cannot override with the legislation says about the % votes needed for resolutions or special resolutions.
Because those sections are not replaceable rules - which can be changed. We covered replaceable rules here.
Now, if you have 2 shareholder's each with 50% of the company shares, you can easily see how there could be a deadlock position.
In these cases, it's useful to have a dispute resolution clause that covers informal ways of resolving a dispute, without formal legal proceedings.
I wish you all the best in your ventures!
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