Founders tend to assume that the board controls when shareholders meet and what they vote on. Mostly it does. But the Corporations Act 2001 (Cth) gives a surprisingly small bloc of shareholders the power to take that control away: under section 249D, members holding just 5% of the votes can require the directors to call a general meeting on resolutions of the members’ choosing. An unhappy angel syndicate, a departed co-founder or an early employee with a meaningful parcel may well clear that bar. Here is how the mechanism works, where its limits are, and what to do when a requisition lands in your inbox.
The Threshold: 5% of the Votes
Section 249D(1) says the directors must call and arrange to hold a general meeting on the request of members with at least 5% of the votes that may be cast at the meeting. Three points matter in practice:
- It’s votes, not shares. Non-voting shares — common in employee share schemes — don’t count towards the 5%. Preference shares count only to the extent their terms carry votes at a general meeting (startup preference shares typically vote on an as-converted basis).
- Members can aggregate. Five shareholders with 1% each qualify together. Section 249D(3) lets them sign separate copies of the request, provided the wording is identical.
- The test is a snapshot. The percentage is worked out as at midnight before the request is given to the company (section 249D(4)).
You will still see guides saying that 100 members can also requisition a meeting. That limb was repealed in 2015; today the only gateway is the 5% test. And the right can’t be drafted away: section 249D is not a replaceable rule, so a constitution cannot switch it off or lift the threshold.
What a Valid Request Looks Like
Under section 249D(2), the request must be in writing, state any resolution to be proposed at the meeting, be signed by the members making it, and be given to the company. The formalities are light, but requisitions do fail on them — an entity signing in the wrong name, a trustee whose trust rather than the registered holder is named, or signature pages that don’t clearly attach to the resolutions. If you are the requisitioner, match the names on the share register exactly. If you are the board, check the request against the register before the clock runs.
The Clock: 21 Days and Two Months
Once a valid request is given, section 249D(5) requires the directors to call the meeting within 21 days and to hold it not later than two months after the request was given. Calling means sending the notice; under section 249H members must generally get at least 21 days’ notice of the meeting itself, unless members with at least 95% of the votes agree to shorter notice. (Short notice isn’t available for removing a public company director or an auditor, listed companies need 28 days, and your constitution may set a longer period.)
The company bears the cost of a section 249D meeting, and the board cannot simply sit on the request. If the directors don’t call the meeting within 21 days, section 249E lets members with more than 50% of the votes of those who made the request call it themselves, to be held within three months of the original request. The company must pay their reasonable expenses, and can recover that amount from the directors personally — a director escapes only by proving they took all reasonable steps to have the board comply.
There is also a faster, self-funded route. Under section 249F, members with at least 5% of the votes can skip the board entirely and call and arrange the meeting themselves, at their own expense. In a small proprietary company with a dozen shareholders, the cost is mostly drafting a compliant notice, which can make 249F a realistic option — though, unlike section 249E, there is no recovering that cost from the company.
What Requisitioners Can — and Can’t — Achieve
A requisition gets a resolution onto the table. It doesn’t pass it. An ordinary resolution still needs a majority of the votes cast, and a special resolution needs 75%. So for a genuine minority, section 249D is an agenda-setting and accountability tool: it forces a formal meeting where the board must front shareholders. Its sharpest use is by shareholders who together hold a majority of votes but a minority of board seats — for example, founders outnumbered on their own board.
That’s because the classic requisitioned resolution is to remove and replace directors. In a proprietary company, the replaceable rule in section 203C lets the members remove a director by ordinary resolution, unless the constitution displaces it. But a resolution is void to the extent it would leave a proprietary company with no directors (section 203CA), so replacements need to be appointed before or together with any removals. Public companies follow section 203D instead, which can’t be displaced by the constitution: a separate notice of intention to move the removal resolution must be given to the company at least two months before the meeting (unless the company then calls the meeting sooner), and it should be served before or with the section 249D request — a trap if your holding company has converted ahead of an IPO.
Two limits matter:
- Proper purpose and member competence. Section 249Q requires a members’ meeting to be held for a proper purpose, and since NRMA Ltd v Parker (1986) 6 NSWLR 517 the courts have accepted that directors need not convene a meeting to consider resolutions the members have no power to pass. Where the constitution vests management in the board, as most do, shareholders generally cannot resolve to direct the board to sign a contract, sack the CEO or reject a term sheet. They can change who sits on the board, or amend the constitution by special resolution.
- Your shareholders’ agreement. A resolution that is valid under the Act can still breach contract. If the shareholders’ agreement gives an investor the right to appoint a director, or makes board changes a reserved matter, voting to remove that director may put the requisitioners in breach and expose them to an injunction. We unpack that layering in shareholders’ agreements vs constitutions.
If You’re the Board Receiving a Requisition
- Diarise day 21 immediately. From then the requisitioners can call the meeting themselves under section 249E, and the directors may end up personally liable for the cost.
- Verify, don’t stonewall. Check the register, the vote count, signatures and whether each resolution is one the members can pass. Refusing a request on a technicality that turns out to be wrong is expensive; where validity is seriously arguable, get advice before refusing.
- Remember whose interests you serve. Using company resources to entrench yourself engages the directors’ duties in sections 180 to 184. Sending shareholders a fair explanation of the board’s position is fine; obstructing the meeting is not.
- Read it as a signal. A requisition is rarely the first sign of unhappiness. It often precedes or accompanies an oppression claim, and a negotiated outcome — a board seat, better reporting, a buy-out — is usually cheaper than a contested meeting.
If You’re the Shareholder
Read the constitution and shareholders’ agreement first, count the votes you can realistically win, and draft resolutions that members actually have the power to pass. If the numbers aren’t there, a requisition burns goodwill for little return, and other remedies may suit better.
Get the Governance Right Early
Most requisition fights in startups trace back to documents that never dealt clearly with board appointment rights, voting classes or information rights. Getting those settled through proper company structuring is far cheaper than litigating them later. If you’ve received a requisition, or are weighing whether to serve one, our startup lawyers in Sydney can help you work through the timetable and your options.
This article is general information only and does not constitute legal advice. You should obtain advice specific to your circumstances before acting.