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What are Limited Company resolutions? Why do they matter? - YouTube
Channel: Accounting and Tax Academy by Tony D
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if you're a small or medium limited
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company business here in the uk then
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gaining an understanding of what a
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company resolution is and how to use
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them correctly could save you and your
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fellow directors and shareholders a lot
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of grief and agony resolutions are
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legally binding and are part of the
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decision-making process for limited
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company members as stipulated in the
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companies act of 2006 and i'll also
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explain the potential consequences of
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simply ignoring the completion of the
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correct paperwork and resolutions in
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this video we will cover what exactly is
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a resolution for a limited company what
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are the different types of resolutions a
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brief look into special resolutions and
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finally why do they even matter and what
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happens if you don't do anything at all
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before i get into today's video be sure
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to visit our accounting and tax academy
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membership area where you can download
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various resolution templates to use in
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your own business
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[Music]
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limited company resolutions are legally
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binding decisions made by the members of
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a limited company members of a limited
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company include shareholders guarantors
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and directors in the main and decision
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making for a limited company certainly
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formal decisions is more than just
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having a verbal conversation and
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agreement
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resolutions are required when formal
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decisions need to be made on matters
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beyond the remit of day-to-day business
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operations and can be divided into
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ordinary or special which we will
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explore in the next section the
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decision-making rules and procedures
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that a limited company must follow are
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set out in the company's act of 2006 and
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the articles of association of a limited
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company which normally state when a
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resolution is required and the type of
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resolution that should be used some
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limited company businesses may also have
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a shareholders agreement that states
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what types of decisions require a
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resolution and how
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there are essentially two types of
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resolution that is an ordinary
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resolution and a special resolution an
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ordinary resolution is a method by which
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members approve routine company
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decisions traditionally by way of a
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general meeting a general meeting is
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normally a physical meeting around a
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table where members attend the different
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types of ordinary company resolutions
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are ordinary resolution of the members
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by way of attending a meeting this is
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perhaps the most common type of
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resolution a written ordinary resolution
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of the members where no board or
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shareholder meeting is required
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and finally a director's resolution also
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known as a board resolution by either a
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meeting or written resolution the types
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of decisions that normally require an
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ordinary resolution of the members
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include but are not limited to
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appointing and removing a director or
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company secretary approving directors
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loans of over 10 000 pounds making
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changes to a director's contract
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authorizing shareholders dividend
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payments increasing authorised share
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capital authorizing the company to
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purchase its own shares so let's look at
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a real practical example
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take bob carl and monty all three
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directors and equal shareholders of
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their company ace designs limited they
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all own the same share type that is
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ordinary share capital and hold 33.3 of
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the total shareholding each and 33.3
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each of the voting rights
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bob wishes to take a director loan from
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ace designs limited of 20 000 pounds and
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raises a request to the other two
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shareholders that is carl and monty the
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two other members need to vote on the
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proposal and an ordinary resolution must
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be passed before bob can take action in
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taking a director's loan the trio decide
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to hold a physical meeting at their head
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office and vote simply by raising their
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hands if they vote for or not raising
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their hands if they vote against bob
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taking a director loan from the company
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at the meeting bob boats four by raising
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his hand and so that 33.3 percent of the
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vote is cast carl votes against by not
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raising his hand and that is 33.3
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against and finally monty votes for by
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raising his hand thus providing a total
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66.6 of votes cost to give a simple
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majority that is over 50 percent
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therefore permitting bob to take the
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director loan of 20 000 pounds from the
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company board minutes are produced and
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an ordinary resolution is passed
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recorded and importantly circulated to
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all members some ordinary resolutions
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have to also be filed with companies
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house
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now something important to note about
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voting at a physical general meeting
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let's suppose monty did not turn up his
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absence basically means his vote would
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not count at all so now the result would
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have been 50 4 and 50 against and
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therefore not enough for bob to take the
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action he wanted to remember he needs a
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majority that is more than 50 percent a
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physical meeting can also include a
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video conference meeting where all
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members are visible the alternative to a
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physical or video conference-based
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meeting is a written resolution
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decisions can be made without the need
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to hold a meeting and it can be simpler
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to administer especially if members are
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spread out geographically or under kobit
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19 restrictions
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[Music]
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all non-ordinary resolutions are deemed
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special resolutions and normally concern
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more critical business matters that
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extend beyond the powers of directors
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special resolutions require approval of
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at least 75 of member votes that can be
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proposed and voted on at general
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meetings or by written resolution if
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allowed for in your limited company
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articles of association the company's
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act 2006 specifies a number of important
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decisions that require a special
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resolution of the members including but
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not limited to
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amending the articles of association
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making changes to your shareholders
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agreement changing your company's name
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allotting new shares reducing your
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company's share capital approving share
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transfers changing your private limited
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company to a public limited company or
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vice versa authorizing compensation for
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directors and finally closing your
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limited company by way of a member's
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voluntary liquidation in essence special
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resolutions were designed to protect the
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interests of minority shareholders thus
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the 75 majority required
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[Music]
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now this is a very important and least
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understood point far too often too many
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limited company directors and
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shareholders completely ignore the
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paperwork of decision-making as it can
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seem and feel like an administrative
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burden or sometimes paperwork is
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produced but the correct procedure is
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not followed the most common scenario in
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my experience that throws matters into
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chaos and stalemate is when there is a
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breakdown between directors and or
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shareholders and believe me this happens
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more often than you think let's go back
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to our earlier example of ace designs
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limited and bob's director loan let's
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suppose bob took the director loan
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without any formal resolution as the
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three directors agreed verbally but
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didn't have time to follow the correct
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procedure and circulate the correct
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resolution paperwork six months later
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carl and bob's professional relationship
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completely breaks down and carl becomes
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quite hostile towards bob
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carl demands bob repay the director loan
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he took earlier on in the year on the
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grounds no formal resolution was passed
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and the action bob took was invalid and
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contrary to section 292 of the company's
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act of 2006 being there was a failure to
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propose consider or circulate the
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correct resolution now from a legal
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perspective carl has a very strong case
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against bob and could enforce him to
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repay the loan in full should he pursue
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matters through the courts
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had the three directors followed the
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correct procedures and documentation
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then certainly for bob such a scenario
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would not have reared its ugly head so
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next time you need to make a formal
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decision for your limited company stop
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and think whether you need an ordinary
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or special resolution or any other kind
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of paperwork in place if you have the
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services of a qualified accountant or
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company secretary they should be
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advising you and executing this for you
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if you don't then head over to our
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membership area where you can download
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ready-to-use resolution board minutes
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and other templates to use in your own
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limited company i hope this video has
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helped you understand what a resolution
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is and the relative importance of them
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and taking you one step closer to
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knowing your numbers as always let us
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know in the comments your thoughts on
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today's video or if there are any topics
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you'd like us to cover in the future
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finally be sure to like and subscribe as
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it really does help us to get our
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content out there this is tony d'angelo
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for the accounting and tax academy
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thanks for tuning in
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