Articles > Small Business

What Are the Rules around Shareholder Quorums?

July 24, 2021   Liv ChumPhilip Evangelou

In order for a company to hold a members’ meeting which is valid, the shareholder quorum in each of their meetings must be met. A Quorum refers to the accepted minimum cutoff of individuals required to be present in a meeting for it to be valid. This is significant as during a member’s meeting, the major business decisions impacting the company’s’ operation require the contribution of shareholders. This is because shareholders are required to cast votes that will determine whether a resolution is passed. Examples of these decisions include:

  • Removing a director 
  • Approving transactions 
  • Carrying out share buybacks 

As a result, the requirement of a shareholder quorum helps to ensure that the company is being represented in a satisfactory manner before any major changes are made at a members’ meeting. 

Requirements for a Members’ Meeting 

The shareholder quorum is one of many rules which companies must abide by for a members’ meeting and the key decisions made within to be considered valid. The rules and requirements that govern the requirements and procedures for valid members’ meeting are found in:

  1. The Corporations Act 2001 (cth)
    • The act establishes the quorum to be at two. This quorum is displaced if a company only has one member. 
  2. The company constitution  
    • Section 249T of the Corporations Act 2001 (cth) outlines a ‘replaceable rule’ where the set quorum for members meetings can actually be replaced by a company’s’ constitution. Consequently, the company constitution can alter this number. 

What happens at a Members’ Meeting 

Typically, a members’ meeting is adjourned if the quorum is not met within the first thirty minutes. Upon rescheduling another meeting, if the quorum still is not present within the first thirty minutes then the meeting will be terminated altogether. Nonetheless, if a shareholder cannot be physically present for the scheduled members’ meeting, there are a number of ways in which they are able to attend. This includes:

  • Phone 
  • Video call
  • By proxy – this is where the chairperson is informed of how the shareholder would like to vote. 

In Summary

A quorum is the minimum number of individuals that need to be present in order for a meeting to be held and for major decisions within the meeting to be validly passed. Although the set quorum can be altered through a company’s constitution, it is important that the quorum designated is neither too big or too small as this ultimately leads to an inadequate representation. Whilst a breach of a quorum does not embody a breach of the Corporations Act 2001 (cth), it does lead to a company’s inability to pass resolutions.

If you have any questions about members’ meetings or are looking to designate a different quorum for your company, contact one of our business lawyers now at 1300 337 997. 

About Liv Chum

Liv ChumLiv is one of OpenLegal's paralegals. Liv is a passionate student of the law, with a real interest in the way that business and legal requirements intersect.

About Philip Evangelou

phillipPhil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.