Summary
- The default rule is one share, one vote on a poll (Companies Act 2025, s. 64(1)), but a company's constitution may negate, alter or add to that right (s. 64(3)).
- A private company may issue shares with special, limited, conditional or no voting rights, subject only to its constitution (s. 64A(6)). A public company may do so only if the constitution provides for the class and sets out its rights, and the issue is approved by special resolution (s. 64A(1)–(3)).
- Two votes cannot be taken away from any share: the vote on a voluntary winding up and the vote on varying that share's own rights (s. 64(4)).
- Holders of 5% of a class may ask the court to cancel a variation of class rights within one month; it does not take effect until confirmed (s. 74).
- A constitution may contain entrenching provisions that require more than the 75% special resolution majority to change; they can be inserted, removed or altered only with the agreement of all members (s. 26A).
Why founders ask about control
A founder raising outside capital in a GMC company usually wants three things: to keep board control after dilution, to prevent investors from rewriting the constitution against the founder's interest, and to protect the economic rights of the founder's own shares. The Companies Act 2025 supports all three, but through different mechanisms with different thresholds. This article sets them out in the order a founder would use them: voting structure first, class-rights protection second, entrenchment third, and the limits that apply to all of them last.
Throughout, "$" means United States dollars (s. 4A). A "private company" is one whose constitution restricts share transfers and caps membership at 50 (s. 18(1)); most founder-led GMC companies will be private.
The default: one share, one vote
Section 64(1) provides that, subject to the Act and to the constitution, "a share in a company confers on the holder of the share the right to one vote on a poll at a meeting of the company on any resolution". A constitution may withhold the vote from a member who has not paid calls (s. 64(2)). Critically, s. 64(3) provides that the one-vote right "may be negated, altered, or added to by the constitution of the company", subject to s. 64(4) and s. 64A.
That single sentence is the statutory basis for weighted voting, non-voting and conditional voting shares in GMC. The constitution, not a separate statute, does the work.
Private companies: the widest freedom (s. 64A(6))
Section 64A is headed "Issue of shares with different voting rights by public company", and its operative conditions apply to public companies. For private companies, s. 64A(6) states that nothing in the section "affects the right of a private company, subject to its constitution, to issue shares of different classes, including shares conferring special, limited or conditional voting rights or no voting rights".
The practical consequence is that a private GMC company can build a founder-control structure directly in its constitution without a statutory special resolution requirement. Typical designs include:
- Founder shares carrying multiple votes per share on all resolutions or on defined matters (board appointments, change of business, sale of the company).
- Investor shares with ordinary votes plus class consent rights over specified decisions.
- Non-voting shares for employees under an option or share scheme, so that incentive equity does not dilute control.
- Conditional voting, for example founder shares reverting to one vote per share if the founder ceases to be employed or transfers the shares to a non-permitted holder.
Because each class has different rights, the constitution should define the classes precisely: the number of votes, the resolutions to which they apply, the events on which rights change, and whether the shares convert. Section 74A allows the constitution to authorise conversion of one class into another, and a private company converts shares by lodging a notice of conversion with the Registrar, effective when the electronic register of members is updated (s. 74A(1), (3)–(4)). A share that was not a redeemable preference share when issued cannot later be converted into one (s. 74A(6)).
The general-meeting approval requirement for share issues also matters. Directors may not issue shares without prior approval of the company in general meeting, which may be general or specific and lapses at the next annual general meeting (s. 161(1)–(3)). A founder controlling the votes controls that approval; an investor should expect to negotiate for it in the shareholders' agreement.
Public companies: the s. 64A conditions
A company that is or becomes public (including one preparing for a listing) faces the conditions in s. 64A(1)–(4). Different classes of shares may be issued only if the constitution provides for the class and "sets out in respect of each class of shares the rights attached to that class" (s. 64A(1)). Such shares may confer "special, limited, or conditional voting rights" or no voting rights (s. 64A(2)). A public company must not issue shares carrying special, limited, conditional or no voting rights unless the issue is approved by special resolution of the members (s. 64A(3)), and every notice of general meeting must specify the voting rights, or absence of them, for each such class (s. 64A(4)).
The special resolution threshold is a three-fourths majority of members voting in person or by proxy at a meeting called on at least 21 days' written notice for a public company, or 14 days for a private company (s. 184(1)). A founder planning a conversion from private to public status should therefore ensure that the weighted voting classes are already in place and described in the constitution, and that the s. 64A(3) special resolution is passed before or at conversion.
The two votes that cannot be removed (s. 64(4))
Section 64(4) sets a floor that binds private and public companies alike. Despite any constitutional provision, the holder of a "specified share", meaning a share that otherwise carries no vote at a general meeting (s. 64(5)), retains at least one vote on a poll on two resolutions: a resolution to wind up the company voluntarily under s. 160 of the Insolvency, Restructuring and Dissolution Act 2018 (the statute applied in GMC by Schedule A to the Application of Laws Act 2024), and a resolution to vary any right attached to that share.
A founder cannot, therefore, issue wholly silent shares. Non-voting investors and employees will always have a say on a voluntary liquidation and on any attempt to change the rights of their own class.
Protecting class rights: s. 74
Weighted voting is only as durable as the class rights that create it. Section 74 provides the protection. Where a constitution allows the rights of a class to be varied or abrogated with the consent of a specified proportion of the class or by resolution of a separate class meeting, and that is done, holders of not less than 5% of the issued shares of the class may apply to the court to have the variation cancelled; the variation "does not have effect until confirmed by the court" (s. 74(1)). Treasury shares are disregarded in the count (s. 74(1A)).
The application must be made within one month after the consent or resolution (s. 74(3)), and may be made even by a holder who voted in favour if a material fact was not disclosed (s. 74(2)). The court disallows the variation if it "would unfairly prejudice the shareholders of the class represented by the applicant"; otherwise it must confirm it, and its decision is final (s. 74(4)). The company must lodge the order with the Registrar within 14 days (s. 74(5)).
Two deeming rules extend the protection to third parties. Issuing new preference shares ranking equally with an existing class is deemed a variation unless authorised by the original terms of issue or the constitution then in force (s. 74(6)). And altering the constitutional provision that governs how class rights may be varied is itself deemed a variation (s. 74(7)). A founder cannot, in other words, first loosen the variation mechanism and then use the loosened mechanism.
Section 74 does not limit relief under s. 216 (s. 74(8)), the oppression remedy, under which a member may apply to the court where the company's affairs are conducted in a manner oppressive to, or in disregard of the interests of, members, or where a resolution "unfairly discriminates against or is otherwise prejudicial to" members (s. 216(1)). Weighted voting used to strip minorities of value rather than to steer strategy invites that application.
Entrenchment: s. 26A
The constitution can ordinarily be altered by special resolution (s. 26(1)). A founder who controls 75% of the votes can therefore change it; so can investors who acquire 75%. Section 26A allows either side to lock chosen provisions above that threshold.
An "entrenching provision" is a provision of the constitution stating that other specified provisions may not be altered in the manner provided by the Act, or may be altered only "by a resolution passed by a specified majority greater than 75%" or "where other specified conditions are met" (s. 26A(4)). An entrenching provision may be included in the constitution on formation, or inserted later "only if all the members of the company agree" (s. 26A(1)). It "may be removed or altered only if all the members of the company agree" (s. 26A(2)), and the Act's alteration provisions are subject to it (s. 26A(3)).
For founders, the obvious candidates for entrenchment are the definition of the founder share class and its voting multiple, the board composition provisions, and the class-consent matters. For investors, the candidates are their information, pre-emption and anti-dilution rights. Because insertion after formation needs unanimity, the cleanest moment to entrench is at incorporation, before any outside shareholder exists.
Entrenchment cannot override the Act. Section 26A(3) subordinates the alteration provisions to the entrenchment, not the other way round; the s. 64(4) minimum votes, the s. 74 court application and the s. 216 remedy remain available.
Board control and removal of directors
Voting control matters most at the point of appointing and removing directors. Section 152(9) provides that, "subject to any provision to the contrary in the constitution", a private company may by ordinary resolution remove a director before the end of his or her term, despite any agreement between the company and the director. The words "subject to any provision to the contrary in the constitution" allow a private company's constitution to require a higher majority, a class vote or a founder consent for removal.
A public company is different: it may always remove a director by ordinary resolution with special notice, "despite anything in its constitution or in any agreement" (s. 152(1)–(2)), and a public company director may not be removed by the other directors (s. 152(8)). A founder of a company heading for public status cannot rely on constitutional removal protection and must instead rely on voting weight.
Whatever the voting structure, every company must keep at least one director ordinarily resident in GMC (s. 145(1)), and no director may resign if that would leave none (s. 145(5)).
Practical checklist / Next steps
- Decide the class structure before incorporation: founder shares, ordinary shares, employee non-voting shares, and the votes attached to each.
- Draft the constitution to set out each class's rights in full (s. 64A(1)(b) for public companies; good practice for private companies) and the conversion triggers under s. 74A.
- Identify which provisions to entrench under s. 26A and insert them at formation, when unanimity is easy.
- Draft the class-variation clause deliberately, remembering that changing it later is itself a variation (s. 74(7)).
- Preserve the s. 64(4) votes for non-voting classes; do not attempt to draft around them.
- If a public listing is planned, ensure the s. 64A(3) special resolution is passed and that meeting notices comply with s. 64A(4).
- Align the shareholders' agreement with the constitution, particularly on s. 161 share issue approvals and s. 152(9) director removal.
Frequently asked questions
Can a GMC private company issue founder shares with ten votes each?
Yes. Section 64(3) allows the constitution to alter the one-vote default, and s. 64A(6) preserves a private company's right to issue shares with special voting rights subject to its constitution. The rights should be set out precisely in the constitution.
Do investors with non-voting shares have any vote at all?
Yes. Section 64(4) guarantees at least one vote on a poll on a resolution to wind the company up voluntarily and on a resolution to vary the rights of their own shares.
How do we stop a future 75% majority changing the founder rights?
Use an entrenching provision under s. 26A requiring a higher majority or a specified condition, inserted at formation or later with unanimous agreement. Removing it also needs every member's agreement (s. 26A(2)).
What protection does an investor have if class rights are varied?
Holders of 5% of the class may apply to the court within one month, and the variation has no effect until confirmed (s. 74(1), (3)). The court disallows a variation that would unfairly prejudice the class (s. 74(4)).
Does s. 64A apply to my private company?
The conditions in s. 64A(1)–(4) apply to public companies. For a private company, s. 64A(6) confirms that its freedom to issue different classes, including limited or non-voting shares, is governed by its constitution.
Key takeaways
- GMC permits weighted, limited, conditional and non-voting shares; private companies need only their constitution, public companies need s. 64A compliance and a special resolution.
- Two votes are untouchable: voluntary winding up and variation of the share's own rights (s. 64(4)).
- Section 74 gives 5% of a class a court remedy against unfair variation, and s. 216 sits behind it.
- Entrenchment under s. 26A is the founder's strongest tool and is easiest to put in place at incorporation.
- Basnet Law drafts founder-control constitutions and shareholders' agreements that fit these sections rather than fight them.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Companies Act 2025, ss. 4A, 18, 26, 26A, 64, 64A, 74, 74A, 145, 152, 161, 184, 216
- Application of Laws Act 2024, Schedule A (Insolvency, Restructuring and Dissolution Act 2018)
