Circulation of member resolution: Everything you need to know

Circulation of member resolution generally indicates the resolution authorized by the circulation among the members of the board or directors. The resolutions often passed under the state of urgency or to avoid the requirement of assembling the physical board meeting. 

Alternatively, the board members can play the same role in this regard. Those members who have a right to call an AGM can intervene into a company’s matters and send the notice before the 6 weeks or 14 days of AGM, depending on the type of resolution they want to propose. Once the company gets intimate with its members, a resolution must be circulated among all the members in the form of a draft.

The concept behind the circulation of member resolution

Generally, the Directors and the board officials of the company prepare the agenda of the meeting. The agenda further compiled and prepared in the form of a draft which needs to be sent to all the appropriate members of the boards. A member, by himself, has a minimal role to play in this regard. 

However, some provisions under the Companies Act enable the members to introduce motions at a meeting and inform the other officials about the commencement of the meeting. 

If members possess one-twentieth of all board members’ total voting rights, they have the right to cast a vote or if 100 members have held paid-up capital of Rs1,00,000 or more, the company must:

1. Sent notice to all the members of the next annual general meeting. 

 2. Circulate the notice of the general meeting among the members, not more than 1000 words illustrating the matters in regards to proposed resolutions to be dealt with at that AGM. 

Some obligations need to be followed after the company registration by the company (as per company act 2013) concerning the circulation of member resolution. Like, confronting board members and top officials before making an important decision. Likewise, the board members are equally responsible for being a part of such a process and should follow the provisions to avoid any sort of dissolutions. 

Any deviation from these provisions could lead to dissolutions of the resolution and may result in a fresh start. 

Draft of Circulation of member resolution

To, 

Name of the Director

Date of Circulation
Subject
Number of items needs to be addressed
Circulation number

Format for Acceptance/ Rejection 

I hereby convey my decision to the above resolution as follows:-

Name of the Director: 

DIN:

Item no.	Assent	Dissent	Sign of the official	Date	Remarks

Circulation of member resolution under section 111 Company act 2013 

• As per section 100, the company shall demand the number of members in writing.

(a) Providing notice to members who are likely to attend the meeting; and

(b) Circulate statements to members regarding matters referred to in the proposed resolution. 

• A company shall not circulate any statement unless—

(a) A copy of the request ought to consolidate all the requisitionists’ signatures, deposited at the company’s registered office. 

(i) The circulation of the notice of a resolution should be done about six weeks before the meeting.

(ii) in the event of other requisition this time frame should be less than two weeks before the meeting; and

(b) there is a deposit with the requisition; a sum caters to meet the company’s expenses in giving effect thereto:

Provided that if, after a copy of a requisition has been deposited at the company’s registered office, an annual general meeting is called on a date within six weeks. 

• The circulation of any statement must conduct as per clause (b) of sub-section (1) if, on the application, either any other person or of the company who claims to be aggrieved, Central Government declares that the rights in this section are being abused to secure needless publicity.

• An order cover in sub-section (3) may link with the cost incurred by the company shall be paid by the requisitionists to the company, 

• The penalty of twenty-five thousand rupees imposed on the company and its officials in case of any error. 

Authority engaged in the circulation of member resolution

The chairman or in his absence, the top official of the company, are entitled to take decisive action whether the aid of resolution by circulation will obtain the approval of the board regarding the specific business. 

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Records Maintaining related to circular of member resolution

The company is liable to maintain the draft and its associate documents for at least three years from the meeting date.

Annexures:

Notice and agenda don’t play a crucial role in the context of resolution by circulation. However, necessary papers could send along with the draft provided they explain the purpose of notice in brief. 

It would be advisable to provide a brief explanation of why approval is sought by circulation.

Time of response:

A time frame of 7 days shall be given to the directors once the draft delivers to them. Based on urgency or necessity, the organization may permit directors to react in this time frame. 

Resolutions:

Here’s the list of matters that can’t be passed by the circulation

Typical Business Items

• Writing Minutes of Meetings of the Audit Committee and other Committees.
• Approving board report and the financial statements. 
• The Compliance Certificate that ensures the agreement with the terms of all the laws required to run the company legally. 
• The list of laws encompasses the legal framework of the organization.
• Appointment of Internal and Secretarial Auditors. 

Specific Items

• Borrowing money by the issue of debentures.
• Investment funds.
• Granting loans or providing security regarding loans. 
• Making contributions in the field of politics. 
• Contacting shareholders regarding the money unpaid on their shares.
• Approving Remuneration of Managers, Director, and Managing Director. 
• Appointment or Removal of the top company’s officials. 
• Selection of a candidate for the post of Manager / Managing Director in more than one company.
• In a public company, the selection of Director (s) subject to the provisions mentioned in the Articles of the company.
• Sales of subsidiaries  
• Sale and purchase of tangible/intangible assets, not in the context of the business.
• Obtaining payment approval from the Director for loss of office.
• Items received by the decisive action of the Independent directors. 

Corporate Actions

• Investment in securities
• Issue of securities, debenture in or outside India.
• Approving permission for merger, amalgamation or reconstruction.
• Diversify the company’s footprint for extending its production capabilities or product portfolio. 
• Taking complete acquisition of another company. 

Additional list of items related to listed companies:

• Preparing Minutes of Meetings for the unlisted subsidiary.
• Financial figures for the listed company, regardless of the time frame in which they have obtained. 
• Recruitment of the candidates for the managerial or senior position. 
• Company action towards the share transfer agent/ the new share transfer agent in compliance with the Board action. 
• Statement of all significant transactions pursued by the unlisted subsidiary.
• Approval regarding operating plans and budgets.
• Critical Managerial Personnel payment information. 
• The occurrence of non-payment that exists due to the unlawful selling of goods by the company or its officials. 
• Any issue which takes public or product liability into the account, including orders which may have diminished the company’s identity. 
• Details of collaboration agreement or info regarding the joint venture.
• The transaction of payment towards goodwill, intellectual property, or brand equity. 
• Labour and staff problems and their suggested resolutions.
• Foreign exchange exposures details and the measures obtained by the management to limit the risks of unfavourable exchange rate movement.
• Non-compliance of shareholder services such as payment error of dividend, delay in share transfer, etc.

Approval:

No resolution 

No resolution shall be assumed authorized by a committee unless the resolution circulated in the form of the draft along with vital documents. The circulation shall be shared among the directors at their registered address via courier or typical post services. The electronic medium can also be used for this purpose. 

The time frame also plays a crucial role in the approval of the resolution. If the approval process fails to complete before the due date, it will be considered of no value. 

Having said that, a minimum of one-third of directors required for the approval process at a meeting. The resolution under circulation should be decided under the guidance of a Chairperson along with board members. 

“Total number of Directors” is equivalent to the “total strength of the Board”, which excludes Directors with a place that needs to be filled. 

Keys provisions of circular of member resolution

• No organization can take advantage of Circular Resolution to secretly dissolve the holding of Minimum Number of Board Meetings.
• Resolutions and items of business cannot be a part of the circular resolution. According to company act 2013^[1] , section 111, such items of business can only pass at duly convened Board Meeting.
• The Board or Committee can pass the circular resolution
• The resolution shall be considered as approval only after acceptance of resolution by the Majority of Directors and resolution passed by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority.
• The draft resolution must be sent with necessary papers to all the Board/ members of the committee, even if some of them don’t hold the power of voting. 
• A Serial No. must be given to Circular Resolution so that tracking becomes easier in the future. 
• If 1/3rd of Directors decided that the resolution cannot be passed at a by circulation, the Chairperson should forward the resolution in the AGM.

Necessary Papers for circular of member resolution

Each business to be passed via resolution by circulation shall be explained by documents implicating:

• A brief explanation of the proposal. 
• Relevant material facts letting Directors get through the meaning, implications, and scope of the proposal
• The nature of concern of any Director in the proposal
• The note shall also instruct the Directors on how to react to the resolutions and the date of validation. 

Let’s quickly summarise what we have learned so far. 

• The resolution shall deem to have been passed by circulation if the agenda is important, and its directly impacting the company’s growth. 
• A resolution must be circulated to the directors in the form of a draft attached with the necessary documentation for seeking their approval, by an electronic medium such as E-mail or fax.
• The Companies Act, 2013, allows its authorized person to circulate the resolution via hand delivery/post/courier/ to the Directors of the Company. 
• Directors or the board members can send their acceptance/ rejection via hand delivery/post/courier to the company’s registered office or via e-mail. 
• Seven days is the time frame given the Director to respond to the notice. 
• Resolutions via circulation shall be noted at the upcoming AGM, and the text thereof with dissent or abstention must be recorded in the Minutes of Meeting.

Wrapping Up

It is quite apparent that the circulation of member resolution plays a vital role in the company’s decision making. Though the circular resolution concept seems simple on the surface, one has to pay attention to the provisions related to it. The whole process of resolution is carried through systematic documentation that needs to increase the authenticity of the draft. 

Make sure that these documents are correctly compiled so that every board member must understand the scope of the draft thoroughly. Hopefully, this in-depth article helps you understand the basic concept and the traits of the circulation of member resolution. If you have some doubts, please navigate to the comment section and feel free to drop your question, we will respond to your queries in no time. 

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