What is shareholders written consent? In general, written consent refers to the act of gaining permission from a stakeholder to make an informed decision.
This is as important in a startup business as it is with other consents such as medicine and with customers.
This is because the written consent of shareholders unlocks powerful avenues for dynamic decision-making in a firm.
A founder must use shareholder’s written consents to their advantage to allow decisions to be made quickly and effectively.
Whether a company can allow action to be taken by written consent will usually depend on the articles of association and the corporation’s bylaws.
Most companies have a provision for action without a meeting in the initial bylaws.
By obtaining the written consent of shareholders, they can take action without the need for a shareholders’ meeting. This denotes shareholder action by written consent.
To take action by the written consent of shareholders, there will need to be a unanimous or nearly unanimous decision between shareholders.
This is unlike physical shareholders’ meetings, where a unanimous decision usually isn’t required over a simple majority.
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The Advantages of Forgoing a Meeting
Decisions without meetings are usually quicker than calling a meeting of the Board of Directors and shareholders.
It forgoes the regularities and conflicts of shareholders’ meetings and allows the conducting of shareholder business outside of the usually infrequent meetings.
Shareholder meetings typically convene once annually at an Annual General Meeting (AGM). Or perhaps quarterly. These are gatherings of a company’s interested shareholders. These are the people that have invested in your company via one of the rounds of financings that you have done in the past.
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At these annual meetings, a company presents its annual report and updates its shareholders on the company’s performance and strategy.
What’s important to us here is the role of shareholders to make key decisions for the company at these AGMs. At these meetings, participants can review and vote on the following decisions:
Vote to review and amend company bylaws.
Bylaws are the rules and regulations the company enacts for its operation and management. Reviewing these can alter a company’s framework, power structure, duties, and even grounds for the dissolution of a company.
Appoint directors to the board of directors.
The appointed board of directors, or commonly referred to as the board is a group of individuals who represent shareholders. They act as the governing body of a company.
The board comprises members from both inside and outside the company. The board makes decisions on the hiring of executives, dividend payouts, and the overall corporate direction and policies of a company.
A strategic appointment of a director can dramatically alter the trajectory of a firm.
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Dividend Payments and Policies
A dividend policy is a policy a company uses to structure its dividend payout to shareholders. As the recipients of these dividend payouts, shareholders have a keen interest in dividend policy.
Thus, a dividend is an act of paying out some of a company’s earnings to shareholders.
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Selection of Auditors
Auditors are persons or firms who review and verify the accuracy of a company’s financial records. Part of their role is to track cash flow and ensuring a company’s funds are properly accounted for.
In addition, comprehensive auditing ensures a high level of trust and transparency between a company and its shareholders.
At shareholder meetings, a chairperson is usually appointed to oversee the AGM. The chair is responsible for organizing and presiding over the meeting. They ensure that proper notice and pre-meeting information is circulated to shareholders.
It is their job to ensure meetings are properly conducted and recorded in accordance with the corporation’s laws and bylaws.
However, organizing such a meeting is costly, time-consuming, and can be logistically difficult. The traditional face-to-face annual meeting model has its obvious flaws.
There’s the cost of a venue to take into account and the lost time planning and preparing for an in-person meeting. All of this costs the company and also potentially delays an important decision.
Telephone meetings and now more recently with the advantage of large video call meetings by video chat on Zoom, Teams, or Google Meet are now available.
Even so, it still can be difficult to make people available at a certain time. Meetings can drag on for far longer than they need to.
Due to the number of participants, especially for large public companies, it can be very difficult to manage and steer a shareholders meeting.
Therefore, these may not be as effective as the chairperson may hope and could lead to fewer decisions being made as many would have liked.
AGMs Need Extensive Planning
With AGMs, there is a lot of planning and schedule management involved in organizing them. If a company runs out of time and does not get to vote on all of the proposals needed, they’ll have to defer the decision for a long while.
Or tackle it at another shareholder meeting. This all comes with a severe time lag for decisions.
That’s where action by shareholders written consent comes in to provide a more streamlined method for shareholder decisions.
This can save tons of time for minor matters as written consent mimics the meeting minutes of a shareholders’ meeting without the burden of holding a large AGM.
For important or pressing decisions like an immediate director or executive appointment, direct action by written consent can get these decisions completed much more quickly.
In this way, it is possible to minimize the impact on the day-to-day executive business of a firm in the event of, for instance, a key individual’s death or resignation.
This would, however, require a unanimous agreement on the decision. An example is an appointment by the required number of voting shareholders.
Therefore, it may be difficult to obtain written consent for large and complicated decisions. And you may have more success in using action by consent for small and medial actions.
What else is Shareholders’ Written Consent known as?
There are a few names used to denote action by way of written consent. Here are a few synonyms that carry the same meaning:
- Shareholders’ Consent to Action Without Meeting
- Action by Unanimous Written Consent
- Notice of Action by Written Consent
- Shareholders’ Written Consent to Action
- Consent Resolution
- Any of the above denotes the process of taking action without meeting through the unanimous of the required number of shareholders.
How does Action by Shareholders’ Written Consent work?
Suppose all required shareholders are in agreement about a resolution. In that case, it should be up to the secretary to prepare a form of unanimous shareholders written consent.
This document would be created in accordance with the corporate law of the state or country the business is incorporated in.
This document must provide the background of the decision that is being made and express clearly the resolution proposed in detail.
It can get very difficult at this stage to finalize a draft that can attract unanimous agreement, and this can delay the decision.
However, this is in the hope that shareholders will, in time and with revisions, agree on the terms of the shareholder resolution without the need for a shareholders’ meeting.
Once an acceptable document is ready, it circulates to the specified shareholders to gather their signatures.
There are a couple of ways this can get done, including by hand, electronically, or using services like Adobe PDF’s signature engine or using the cloud-based electronic signature service DocuSign.
Electronic signatures are a perfectly acceptable way of gathering agreement, and many see it as the preferred method, especially if the shareholders are remote.
Contents of the Written Consent Form
For a shareholder to give consent instead of a meeting, the written consent form must include the following:
- The state (if in the US) or the country in which the company is incorporated. This is to ensure the correct procedures are being followed in accordance with the applicable company law.
- The name of the corporation
- Chairperson. They are usually the company president or chair of the board, but could also be the secretary
- The names of shareholders in the agreement.
- The proposed and agreed upon resolution. This is the decision being made.
- Add the effective date of the resolution from when the decision is in place. For most decisions, this would be from the date of signing.
- Any certified resolutions.
These must then be submitted to the company’s board for action. The named shareholders should get the consent resolution form signed, and any actions taken must get recorded in the corporate minute book.
What decisions do company directors need shareholder consent for?
For mundane and simple decisions that still require shareholder approval, action by shareholder consent can cut out needless headaches and delays.
As for which decisions need shareholders written consent, unless specified in the company’s bylaws or articles of association, directors will need consent from shareholders for:
- Appointment of auditors
- Appointment or re-appoint directors
- Removal of the director or the auditor
- Declaration of dividend
- Changes to the company’s articles of association
- Matters involving the dissolution of the company
Most of these resolutions are large and complex, and therefore shareholders are unlikely to agree unanimously on a resolution. Therefore, without unanimous consent, a meeting will have to be called to pass a resolution.
As mentioned before, this doesn’t have to be an in-person meeting. A virtual shareholders’ gathering can remove some of the difficulties in holding a meeting to pass crucial resolutions.
However, this will, of course, be a longer process than being able to take action by unanimous consent.
The difference between meeting minutes and action by shareholders’ consent
Some regard a notice of action by consent as the equivalent of the minutes of a shareholder meeting without having to undergo a meeting of shareholders.
The minutes of a shareholder meeting are a written record of any actions or decisions made during an investor meeting.
Other common names for this include corporate minutes, meeting agendas, and meeting notes. A designated official records the minutes of a meeting in the corporate minute book, allowing for an accessible log of historical notes of any resolutions passed in shareholder meetings.
The minutes should start with company details like the name, the company’s jurisdiction (state or country) and should outline the chairperson and the secretary of the meeting.
The meeting place and time will also be found at the start of the minutes. There will then be a section for resolutions, the name for decisions in company law.
These should address the meeting agenda that would have been circulated ahead of the shareholders’ meeting by the chairperson and/or secretary.
For each item on the agenda, the minutes should include:
- Any action agreed or taken during the meeting
- Whether motions have been taken or rejected
- Voting outcomes on proposals
- Items on the agenda that must be held over for a later meeting
Comparing that to the notice or form of an action made by written consent, we can see the same format for resolutions brought forward without meetings.
Therefore, to some, shareholders written consent is a way to get meeting minutes with resolutions without needing to hold a meeting.
Bringing the shareholders together is time-consuming and expensive. First, you have to gather everyone together.
Then pay for a venue and all other expenses related to bringing the shareholders to the city of the meeting.
Do you want to make decisions fast without calling the shareholders and hosting a meeting? Then creating a shareholders written consent form will be greatly beneficial.
For any shareholder or company director to take action by written consent, it is advisable to consult a company lawyer.
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For small businesses and startups, this could be relatively expensive. But navigating company law and your corporation’s bylaws can be difficult and successful action can take a lot of expertise to pull off.
Consult a lawyer for advice if you’re looking to use action by shareholders’ written consent or a board consent meeting.
So, getting those mundane tasks and decisions out the way in the easiest way possible with a shareholder’s written consent form.
Whether it be removing, or re-appointing directors, changes to the company’s articles of associations, or appointing auditors, the company can get things done without the hassle.
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