1.5 Business - Shareholders Flashcards
Who is a shareholder?
Legal (NOT beneficial) owner of Co’s shares
Accountable for Co’s financial performance
What are the key features of shares?
Personal (NOT real) property (s. 541)
Fixed nominl value (s. 542)
- Otherwise allotment of share w/o fixed value => VOID
Can denominate in any currency
Transferrable (based on Articles)
What is required in Share Certificate?
Under Co’s common seal => Prima facie evidence of share title (s. 768)
SH’s address, class + no. shares
NOT legal title of shares (until SH’s name is entered in Register of Members)
What are the types of shares?
Ordinary shares
- NO special rights/restrictions
- Co can divide into classes of different value
Preference shares
- Co to pay annual dividends available for distribution on these shares before other classes
Cumulative preference shares
- If annual dividends cannot be paid in one year => Carry forward to successive years
Redeemable shares
- Co can buy back at SH/Co’s option after certain period
- Co must have at least other shares as well as redeemable shares
What are the shareholder’s duties? Are they bound to the Company?
Duties
- Must pay shares when called
- Only liable for Co’s debts = SH’s outstanding amount on shares (NOT beyond)
AA > Statutory contract between Co + SH
- SH bound to same extent as if covenants on Co’s part/each SH to observe those provisions (s. 33 CA)
- Co can enforce AA to pay unpaid shares
- SH can enforce AA to use voting rights vs Co/pre-emption rights on share sales vs SH
What are the shareholders’ rights?
CA/Articles
- Remove Ds
- Alter AA
- Vote on issues affecting Co as whole
- Rights related to share transfer
- Rights to receive Ds’ declared dividends
- Inspect Co’s record and books
- Rights to Co’s assets (share in recovered proceedds when Co liquidates assets)
What are dividends?
Post-tax profits > SHs
- Return on investments
- Distribution (cash or otherwise)
- Corporate tax paid on profits (dividend cannot be deducted from calculating corporate tax) => Distributed to SH
Types
- Final (OR required)
- Interim (declared during accounting period; Ds’ power to declare; NO OR required)
Statutory/Common law duties > NOT unlawful distribution
Available for the purpose (s. 830)
- Last audited annual accounts
Accumulated realised profits (NOT used by distribution/capitalisation) LEESS Accumulated realised losses (NOT written off in reduction/reorganisation of capital duly made)
What are the consequences of unlawful dividends?
D breaches fiduciary duty => Unlawful dividend
D is liable;
- Repay dividend to Co
- Account for profits gained to Co
SH is liable to repay dividend
- SH knows/had reasonable ground to believe unlawful dividend at the time it was made
These provisions cannot be ignored (no defence)
When must Co send annual accounts and reports to SHs?
Every financial year
- Within 9 months after end of relevant accounting reference period
- If reports are filed w/ CH => Before 9-month period
Recipients
- SH
- Debenture holders
- Persons entitled to receive notice of GMs
What is required for Single Member Company?
Single member Co
- Statement of fact (acknowledging single member) > Must update with date of Co ceasing to be single member
Multiple member Co => Single member Co
- Statement of fact (SH’s name + address, date when Co became single member)
What is required for Multiple Member (+50) Company?
Index (SHs’ names) (unless register of members is in same form as index)
- Necessary alterations (within 14 days after alteration made in Register of Members)
- Sufficient indication to allow each SH’s account in Register to be easily found
- Available for inspection at same place as Register
What is required in Register of Members?
D/Secretary maintains Register
- SHs’ names + addresses
- Date of SH’s first registration
- Date of SH’s termination as member (can remove SH entry after 10 years since termination)
- Statement (SHs’ shares, distinguishing shares by number and class, amount paid/to be paid)
Where should Register of Members be kept for inspection?
Registered office
- Notice to Registrar (office address + changes in address)
CH (public record)
- Update w/ confirmation statement
- Election to keep in public record
1) All members assent
2) All info Co would bae required to enter in Register if no election (as soon as reasonably practicable after Co becomes aware)
3) Registrar to register it
=> SHs’ details (addresses) become publicly available
Who can inspect Register of Members?
SH’s request
- Provide info > Co
General public’s request
- Provide info + prescribed fee > Co
If Co satisfied request is for proper purpose => Must comply within 5 working days
If Co NOT satisfied request is NOT for proper purpose => Court to decide
- If NOT satisfied => NO compliance + Applicant to pay costs
- If satisfied => Court to comply
‘Proper purpose’ [Fox-Davies v Burberry]
- Seek to hold GM
- Investigative corporate impropriety
- Investigative journalism into shares’ interest/ownership
How can election to keep Register of Members on public record be withdrawn?
1) Co > Notice of withdrawal > Registrar
2) Co must maintain own statutory register of members
3) Co must retain historic register
- Current members’ info
- NOT historic info after election
4) Note on Members’ register
- Withdrawal of election
- Members’ info after election in force
Who must record Register of Persons with Significant Control (PSC Register)?
Company
NOT
- Co subject to FCA’s disclosure and transparency regime
- Co w/ voting shares traded on certain overseas regulated markets
Who must be included in PSC Register?
Holding (directly/indirectly) +25% of Co’s shares/voting rights
Holding rights (directly/indirectly) to remove/appoint maj. Ds
Holding right to exercise/actually exercising significant influence over Co
Holding right to exercise/actually exercising significant influence over trust/firm with no legal personality under governing law + one of above conditions met
What must Co obtain from SHs to be included in PSC Register?
Name DOB Nationality Residence country Service address Usual residential address Date acquiring significant control Type of conditions met Restrictions on disclosing SH's info
=> Publicly accessible
- NEVER blank
- Otherwise SH could have interest in Co frozen until compliance
What must Co send to Registrar regarding PSC?
Form PSC01 (Individual)
Form PSC02 (legal entity)
Form PSC07 (ceasing control)
Form PSC04 (change of details - individual)
Form PSC05 (change of details - legal entity)
Change recorded in PSC Register within 14 days > Notice to Registrar within further 14 days
What are majority and minority SHs?
Maj SH
- +75% control (appoint/remove Ds)
- Can also be D (small Co)
Min SH
- Less than 75% control
- Limited right to object to Maj SH’s running of Co
What are Articles of Association?
Membership rights (s. 33 CA) > Min SH v SH
- Receive dividend (once declared)
- Vote at meetings
- Share in surplus capital on WU
Outside capacity > SH can NOT sue Outsider
- SH’s right to be D
- Person always entitled to serve as solicitor
What is a shareholders’ agreement?
Certain matters may not be conducted unless min. SH consents
- Increase D remuneration
- Issue shares
- Amend AA
Protects + strengthens SH’s rights
SH’s rights vs SH/Co
What happens if Articles and Shareholders’ Agreement contradict?
Articles prevail
SHA overriding terms will NOT be implied into SHA
- UNLESS if court is satisfied that, if terms were not implied, SHA would contradict reasonable person’s interpretation of SHA
What is required for derivative claim?
Part 11 CA
1) Derivative claim
- SH brings claim on Co’s behalf
- Co failed to exercise derivative right
2) Against D
- Negligence
- Breach of duty/trust
- Default
- NO need to show D controlled majority shares
3) Prima facie case
- Prevent disgrunted SHs bringing vexatious claims (yet depend show courts will react to ‘fishing’ litigation)
4) Benefits of claim > Likelihood of deflecting Co’s energy from properly running business
If Co wins
- D pays compensation to Co
- D pays costs to SH
How can SH sue Co for unfair prejudice?
S. 994-996
1) Co’s acts
- Affairs were/will be conducted with ‘unfair prejudice’
- Co’s actual/proposed act/omission would be so prejudicial
2) SH applies for relief to court
- NO need to show Co’s bad faith/conscious intent to be unfair
3) Court is satisfied unfair prejudice exists
- Co NOT paid dividends (in place of bonuses to Ds)
- Co NOT lay accounts before SHs
- Co delayed GMs
- Co altered AA > Change voting rights/excluded pre-emption provisions
- Other Ds gave themselves excessive remunerations (appropriateness depends on objective commercial criteria) + policy of not paying dividends to SHs
What orders may court make if it finds unfair prejudice?
As court thinks fit
- Regulate Co’s future conduct
- Authorise civil proceedings on Co’s behalf
- Require Co NOT to change Articles (UNLESS Court allows)
- Require Co to do/NOT do complained act that petitioner complained that Co omitted to do act
- Require SHs causing unfair prejudice to purchase SH’s shares > Bring proceeds at fair value
When may SoS intervene in Co’s affairs?
1) Company
- Co’s affairs conducted in unfairly prejudicial manner to SHs’ interests
- Co’s actual/proposed act/omission would be prejudicial
2) SoS received Inspector’s Report re Co > Petition for Order > Court
- Gain docs + info to enter/search premises or info gathering and investigation
- Received report from Investigator appointed by SoS/FCA
AND/NOT SoS petition for WU > Court
What is required for winding up?
S. 122(1)(g) IA 1986
1) Grounds
- Purpose of Co’s formation failed
- Co intended as partnership + grounds for dissolution (SH excluded from mgmt)
- SHs’ deadlock
- Co’s affairs oppressive to SHs
- Co formed/run for illegal purpose
2) ‘Just and equitable’
- Solvent
- NOT solvent
=> WU (end Co’s existence)
- BUT preferable for unfair prejudice petition > Avoid job losses
Who can sue for reflective losses?
1) Reflective loss [Prudential Assurance v Newman Industries] caused by wrongdoer
- Diminution in SHs’ value of shares
- Reduction in SHs’ distribution
2) Suing party [Sevilleja v Marex Financial]
- NOT SH (must rely on other remedies like derivative action/UP action)
- Co + SH
- Creditor
- Employee
What are resolutions? Who must receive them?
SH/D makes agreement/decision
- Change Co’s name
- Change Articles
- Change Co’s share capital
Pre-determined maj. votes are reached
- Otherwise resolution fails
Co must deliver;
1) Notice of intention of proposed resolutions => SHs
2) Proposed resolutions + communications => Auditors
3) Resolutions within 15 days of passing them => CH
- Otherwise Co + D > Summary conviction + fine
What are SHs’ voting rights?
Written resolution
- 1 share = 1 vote
General meeting
a) Vote by show of hands
- No. shares NOT relevant
b) Poll vote (NO show of hands possible)
- Called by +2 SHs
- 1 share = 1 vote (NO need to use all votes if more than 1 vote held)
- NOT able to attend > Appoint proxy
- Joint holder of shares > First named in Register can vote (UNLESS Articles state otherwise)
- Articles preventing poll > VOID (s. 321)
- Articles preventing poll > VOID (+5 SHs’ right to vote/Holders of +10% voting rights of ALL SHs’ right to vote on resolution (NOT elect chair/adjourn))
What is required for passing written resolutions?
1) GM/Class of SHs’ meeting
- SH (representing 5% SHs eligible to vote/% shareholding under Articles)
- D
2) SHs > Co
- Authenticated document (signed) (resolution + agreement)
- Hard copy/Electronic/Articles’ method
- NOT revocable
What are the types of written resolutions?
Ordinary resolution
- +50% eligible to vote
- Removal of D before term expiration
- CA NOT specify type of resolution needed (UNLESS CA requires higher majority/unanimity)
Special resolution
- +75% eligible to vote (UNLESS Articles require otherwise)
- SHs liable to be prejudiced in severe manner (changing Articles)
What is required for private companies to hold annual general meetings (AGM)?
NOT mandatory
- Present audited accounts
- Appoint D/auditor
- Fix remuneration and recommendation for dividend payment
- Other deals (must notify SHs)
Mandatory
- Remove D/auditor before term expiration
- Articles state otherwise
- Co incorporated before 1 October 2007 (UNLESS SHs’ elective resolution > dispense such obligation)
- Co has 1948 Table A articles (BUT can amend by SR)
=> Written resolutions (NO need for GMs)
What is required for public companies to hold annual general meetings (AGM)?
Mandatory
Within 6 months of end of financial year
Notice to SHs
- Min. 21 days (UNLESS Articles state otherwise)
- Shorter notice (ALL SHs consent)
SHs’ vote at AGM
- NOT written resolution
What are the two types of company general meetings?
Extraordinary general meeting
Annual general meeting
Who may call for general meetings?
Directors
- Whenever they wish
SHs > Ds
- Request to Co (SHs representing +5% paid up share capital/voting shares - Hard copy/electronic + Authenticated by SHs) (general nature of business at GM + text of resolution (may be moved/intended to be moved))
- Within 21 days of request made/Within 28 days of notice convening meeting (prevent D delaying urgent matters at GM)
- UNLESS NOT effective/defamatory/frivolous/vexatious
What is the required quorum at general meetings?
2 persons must personally attend GM
- SHs
- Corporate representatives
- Proxies
- Neither can be same identity
1 person must personally attend GM
- Co has only 1 SH
When must Co give notice of general meeting to SHs?
Min. 14 days before GM
- ‘Clear day’ rule (excludes first day when SH receives notice + last day when GM commences)
Shorter notice
- Private Co > SHs holding +90% shares consent
- Public Co > SHs holding +95% shares consent
Special notice of intent to move resolution
- Appoint/Remove Ds or Auditors before term expires
- +28 days before GM
- Otherwise if not practicable > +14 days before GM via newsaper advert having appropriate circulation/Articles’ method
What must notice of general meeting to SHs contain?
1) Method(s)
- Electronic (email)
- Hard copy
- Website (if Articles allow)
- SH resolution + SHs agree
2) Contents
- Time
- Date
- Location
- Resolutions
- Business transaction
- Right to appoint proxy
