Most people have heard of resolutions for companies, but at certain times the Companies Act 1993 (the Act) requires companies to issue certificates. We were recently asked what certificates are, when they need to be issued, and how certificates differ from resolutions. These are great questions and we answer them here so more people can have the information.
Both resolutions and certificates are important for appropriate decision-making, due process, and to ensure good governance.
What is a resolution?
In meetings (or via email if a decision is needed outside of a meeting), decision-makers will typically discuss something and make a decision. A resolution is the record of that decision. Resolutions must be recorded in the minutes. Schedule 3 of the Act provides a good overview of what is required for board meetings. It is common for company constitutions to include more detail and process around company meeting obligations.
When are resolutions needed?
It is advisable to record all important director decisions as resolutions. One important situation requiring a resolution or contingent on approval by special resolution is when a company wishes to enter into a major transaction. This might relate to the acquisition or disposition of assets the value of which is more than half the value of the company’s assets before the acquisition or disposition.
Resolutions are also needed in many other situations, including when adopting a constitution, deciding on the consideration for which shares will be issued, or deciding to exercise an option to redeem a share.
What is a certificate?
A certificate is more formal in nature than a resolution and sets out information which directors certify as being true. Certificates are only required in certain situations. Companies will make many more resolutions than they will issue certificates.
Certificates are typically required to be provided to the Companies Register where they will be publicly accessible. Anyone can do a search on an incorporated company. For example, a search of ‘documents’ for a large company will show many examples of certificates the company has provided to the registrar. The register promotes transparency and accountability, which is intended to help encourage good governance and discourage behaviour by directors that may harm shareholders.
When are certificates needed?
When certificates are required by the Act it is common that a resolution is needed first. For example, when directors are determining the consideration for the issue of shares they will vote and there will be a resolution. Only then are they able to sign a certificate and provide that to the Registrar.
Some other examples of when certificates are typically needed include:
- When the board passes a resolution for the issue of options or convertible financial products, an offer to acquire shares, or for distributions to shareholders
- When the company is amalgamating with another company
- If the company has a listing agreement with a stock exchange, after the registration or a transfer of company shares
- When a director is appointed or removed
- If authorising a payment, benefit, loan, guarantee or contract to a director
- If authorising liability insurance for directors or employees.
Consequences of not issuing certificates:
- Fines of up to $5,000 apply for failure to comply with the obligations to provide certificates for shares or failure to sign a certificate of solvency when necessary
- The company must keep a copy of all certificates for the last 7 years at its registered office
- Shareholders and any authorised person are able to give notice in writing to view certificates.
This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers: